–Adds Detail, Quotes To Version Transmitted At 1012 GMT
–Downplays Importance of QE Bringing Down Long End Of Yield Curve
–BOE MPC Won’t Cut Bank Rate Before Launching QE
–Eurozone Developments Key Factor For MPC Monetary Policy Setting
LONDON (MNI) – Uncertainty over what the effects of quantitative
easing are argues for erring on the side of caution in choosing how much
QE to do if the bank takes the decision to further ease policy, Bank of
England Monetary Policy Committee member Ben Broadbent said.
Broadbent, the newest recruit to the MPC, said that there were two
opposing effects to consider in deciding how much QE to do. If the first
wave of QE was less effective than hoped, then this argues for more next
time, but continuing uncertainty over its impact weighs in favour of
Asked about the scale of QE Broadbent said “There are two slightly
different elements to it. If you knew exactly what it was going to do
and you knew that it wasn’t going to do much then you would have to do
more of it.”
“If there is any degree of uncertainty about precisely what that
effect is, that would tend to act in the opposite direction,” he added.
“You can imagine taking that argument about ‘the less effect it has
the more you should do’ to an absurd limit, where if it does nothing you
should do infinite amounts of it,” Broadbent said.
“So I think there is a trade-off here between the scale of its
impact and also how sure you are of that impact.”
The MPC member, speaking at an event at Thomson Reuters
Headquarters here, was asked by reporters about the comments of his MPC
colleague Martin Weale, that QE should look to bring down the long end
of the gilt yield curve.
Broadbent downplayed the importance of targeting the long end of
the yield curve, saying the scale of QE was what mattered.
“These are all second order decisions (on the yield curve target).
They’re not unimportant but the scale of the policy, were it to happen,
is the more important decision. I’m not suggesting they’re irrelevant,
but the size of the central bank’s balance sheet is what matters,” he
He was dismissive of the case for the MPC to make a US Federal
Reserve style “low-for-long” announcement on Bank Rate or a cut in Bank
Rate from its current record low 0.5%.
“I think it would be wrong to rule out categorically for ever those
policies, there’s no reason to do that. Equally, if you look at the
history, it’s never been the inclination of the MPC to telegraph future
policy because that too would bind you in and that’s not necessarily
desirable,” he said.
“There were at the time, in 2008/9, maybe some discussions about a
small further reduction in Bank Rate. You can see, at least from the
minutes, that that’s not what’s going to happen before QE at least. I
don’t think anyone wants to rule them out forever. But at the moment,
they’re not the first port of call,” he said.
Eurozone Events Big Influence On Appropriate MPC Policy Setting
The minutes of the September MPC meeting said members were waiting
to see what overseas authorities might do.
Asked to elaborate on this Broadbent said “I don’t think it would
be too controversial a lot of those rely on the eurozone” and they would
to have wait-and-see what things were done and not done there.
“The judgement of the market is certainly that things have
deteriorated and there is a chance of default in some peripheral
countries,” he said.
“As a result of that the funding cost of banks have gone up
everywhere,” he added.
Broadbent stressed the importance of eurozone policy developments
for UK monetary policy setting.
“The MPC meets every month. In time you have to chance to revisit
things whether these measures are taken or not. I certainly think that
they have a very big influence on the UK economy and the appropriate
setting of monetary policy,” he said.
Broadbent was also questioned about weekend reports about a huge
increase in the scale of eurozone support for troubled member states,
with the EFSF rumoured to be increased to E2 trillion.
“Numbers like that would have greater success than sticking with
the EFSF as it is… the obvious charge from the market is that more
needs to be done,” he said.
Broadbent said eurozone policymakers had to act, not just talk.
“I don’t envy their position. It’s not a position I’d like to be
in, I don’t want to pass judgement on them. But I am saying that one
thing that one can learn from the last year or two is that doing this
stuff is probably more important now than saying stuff. The market has
become quite skeptical about promises of action,” he said.
He said he was not disappointed, however, with the outcome of the
weekend’s International Monetary Fund meeting.
“No, (the IMF meeting is not a disappointment) I don’t think IMF
meetings have ever led to very, very much. These are huge policy
changes, that’s why they’re difficult to make, these decisions, they’re
very, very big decisions. An IMF meeting is not actually the traditional
place where they happen.”
In an earlier speech here, Broadbent said the most important thing
for policy today is that the international environment is “clearly
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