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Highlights: Bank of England policymakers appear before parliament
May 24, 2016 / 10:06 AM / a year ago

Highlights: Bank of England policymakers appear before parliament

Pedestrians walk past the Bank of England in the City of London May 15, 2014. REUTERS/Luke MacGregor

LONDON (Reuters) - Bank of England Governor Mark Carney and Monetary Policy Committee members Ben Broadbent, Gertjan Vlieghe and Martin Weale are appearing in front of parliament’s Treasury Select Committee to answer questions.

The focus of the questions was on issues related to Britain’s June 23 referendum on whether to remain in the European Union, and what the Bank of England has said or will say about that.

The following are highlights of the session.

MARK CARNEY

BOE WOULD NOT STAND IN WAY OF NECESSARY ADJUSTMENT IN EXCHANGE RATE IN EVENT OF BREXIT VOTE:

”The United Kingdom to its great credit has been committed to free floating of the currency, and you would not expect the Bank to stand in the way of necessary adjustment in the exchange rate, and it would be inconsistent as well to use the exchange rate for competitive purposes or other reasons that would be inconsistent with our G7 committees.

“We as an institution will take all necessary steps to ensure that markets are orderly and the principal steps that we expect to take in that regard we have already announced, which are the liquidity facilities I think we discussed last time we were here.”

WHAT THE BANK MIGHT SAY BEFORE EU REFERENDUM:

”We in my judgment have highlighted the key economic issues around, including short-term uncertainty and the potential change in the trade-off between output and inflation, so I would not expect something substantially different to be said (after the MPC’s June 16 meeting).

”I am not intending to (say something different) but I‘m one person on the committee.

“Let me give you an example, hypothetical but we’re speaking in the hypothetical, which is that the degree of uncertainty engendered by the referendum campaign and its impact on economic variables, I would not exclude the possibility that there is some evolution of the committee’s thinking on that. I‘m one member of the committee, we’ll have a few more weeks of data, things will move around, there may be a judgment around that. There may be a judgment about underlying momentum in the economy as a consequence of that.”

WHAT THE IMF MIGHT SAY:

“I think the crux of the IMF view around these issues has already been expressed.”

“I think this will be detail.” (referring to what the IMF might say when it releases an article IV report on the British economy a week before the referendum)

WHY THE BANK HAS TO SPEAK UP ON IMPACT OF REFERENDUM:

“We recognize individually and collectively that the decision in the referendum could change the monetary policy trade-off in a material fashion and therefore change the stance of policy and it’s important not just for those in financial markets to understand that but it’s important also to (be) straight with the British people about that.”

MORTGAGE RATES COULD RISE IF THERE IS A BREXIT:

”We (Carney and finance minister George Osborne) have discussed potential developments on risk premium on sterling assets. For both of our direct responsibilities that risk is relevant. I would characterize it thus. The combination of the effects on demand and supply in the exchange rate ... could result in either a lower or a higher bank rate.

”What is more likely, where I‘m on surer ground, is there’s likely to be a risk premium on risky assets in UK sterling for a period of time, and so even in the case of a potentially lower bank rate the overall mortgage rate could be higher.

“It is not unreasonable to expect term premiums on UK assets to increase from the relatively low level and those are more relevant for mortgage rates.”

BREXIT WOULD REDUCE LIKELIHOOD NEXT MOVE IN BOE RATES WOULD BE UP:

Question: is next interest rate move likely to be up regardless of whether Britain leaves EU?

”Well no, on balance it (Brexit) would reduce that probability.

“In this case, because the exchange rate may do a lot of the work and maybe too much of the work and because there’s potentially a supply shock, and that would put upward pressure on inflation, both of those aspects would mitigate against stimulus -- would reduce the likelihood of stimulus or the degree of stimulus that would be appropriate.”

BEN BROADBENT

STERLING LIKELY TO FALL BY MORE THAN 5 PCT IN EVENT OF BREXIT VOTE:

”What (the BoE) analysis suggests ... was that close to 5 percentage points of the decline we’ve seen in sterling since November was attributable not to the fact of exit, but to the possibility of leaving the EU.

“That risk (of Brexit) is not 100 percent at the moment. Roughly speaking, this (depreciation) might have been caused by, say, an assessed probability in the market of around 30 percent. So if it were to go from 30 to 100 - which is what happens in the event of a Leave vote - one might infer you’d get more than another 5 percent (depreciation).”

GERTJAN VLIEGHE

ON WHETHER AGREES WITH LATEST TREASURY WARNINGS ON BREXIT:

“I don’t want to give a running commentary on every report that analyses what may or may not happen to the economy. I think the MPC speaks in its own voice on this and we have discussed this in the minutes, we have discussed this in the inflation report and I agree with that analysis that we have put out, which is that it is likely that there will be a material slowing in growth and it is likely that inflation will rise and that the exchange rate will fall.”

Reporting by Estelle Shirbon, Costas Pitas, Paul Sandle and Andy Bruce

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