LONDON (MNI) – The Bank of England’s February Inflation Report does
show inflation climbing back up to target in the medium term, Deputy
Governor Charles Bean said at a press conference.

While the central, modal projection shows CPI holding below the 2%
target, coming in at around 1.8% in two years time, on the balance of
probabilities Bean says the chances are roughly equal of inflation being
above or below target.

In response to a question on how much more quantitative easing
would be required to get CPI to 2% Bean said “By the end of the forecast
period the risk of being above or below the target are roughly 50/50.”

The central projection of the Inflation Report fan chart is shown
as a thick red line.

“In terms of ‘is the thick red line at the target in the medium
term ?’ the answer is yes,” Bean said.

“It is true that earlier in the forecast period there is a slightly
greater probability of inflation being below rather than above the
target,” Bean added.

Monetary policy is based on the big picture of the inflation
projections.

“In terms of the monetary policy decision we don’t try and control
the target inflation rate at a particular horizon, it is the general
picture (that matters),” Bean said.

Earlier in the press conference BOE Governor Mervyn King said
there are limits to how much can be achieved through monetary policy at
present but the economy is moving in the right direction.

At a press conference following the publication of the February
Inflation Report King said the BOE’s Monetary Policy Committee did not
believe that its policy of quantitative easing would produce diminishing
returns, but he said it could only go so far in stimulating the economy.

“We don’t believe as a matter of principle that asset purchases
exhibit diminishing returns,” King said.

The aim of the policy is “trying to persuade people to bring
forward spending from the future to the present,” King said.

“There is a limit to how much you can expect spending to be brought
forward from the future to the present,” he added, and that limit
restricts what policy can achieve.

He described this restricted ability to bring forward spending as
the “paradox of policy.”

The BOE Governor was also asked about the impact of the MPC’s
impact on savers, with interest rates on savings running at historically
low levels.

King said the MPC has to consider the overall impact of its
policies rather than the impact on savers alone.

“Our judgement has to be what is the right course of action to
steer the economy back to low inflation and steady growth,” he said.

–London newsroom: 4420 7862 7491 e-mail: drobinson@marketnews.com

[TOPICS: M$B$$$,M$$BE$]