LONDON, Feb 23 (Reuters) - Bank of England Governor Mark Carney and some of his fellow policymakers are answering questions from members of Britain’s parliament about the central bank’s latest projections for the economy.
Below are some of their comments.
MARK CARNEY, BANK OF ENGLAND GOVERNOR
“Our approach to forecasting events around the referendum is to take developments in markets and confidence indicators ... and to feed those through into the forecasts.
“We’re not making a judgement about the potential outcome of the referendum, in other words which side will win, or an assessment of the potential consequences of a leave vote.
“We’re treating this vote exactly how we treat any other political event which is not to make a judgement on the outcome and assume status quo continues.
“It is safe to say that there is a lot of referendum premium that has come into sterling. We are engaged in contingency planning for the (EU) referendum as you would expect and also the PRA in terms of its general supervisory responsibilities is keeping abreast of contingency plans of our financial institutions.”
On interest rates:
(Talking about negative interest rates) I just re-emphasise we have absolutely no intention, no interest in doing that.
“What is important in my view from a global monetary perspective is that the focus of monetary stimulus if necessary is principally concentrated domestically.
“We have options around quantitative easing...and the APF can buy a series of assets, we would be very conscious if we ever extended beyond gilts...
“It would have to be designed in an absolutely neutral way so we were not making distributional decisions across sectors of the economy because that’s a job for government.”
“Since the start of the year bank stocks have been under pressure. There are a variety of causes of that but what is not a cause, what it does not indicate in my view is concerns about the resilience of the institutions.
“The fundamental concerns are about the returns of the institutions.”
“I’d associate myself with what Dr Weale just said...It does appear that recent moves have been influenced by the upcoming vote.
“What matters for monetary policy is not just a move in the exchange rate but persistence of that move and the reasons behind it.
On stimulus options:
“If we were in a position where the economy needed additional stimulus ... we could cut interest rates towards zero. We could engage in additional asset purchases, including a variety of assets.
“We could also provide a perspective where we could adjust our policy horizon - in other words we could shorten our policy horizon over which we wanted to return inflation to target.”
BOE’S GERTJAN VLIEGHE
On downside surprises:
“We see resilience in domestic demand that is sufficient to offset the external headwinds and given that there is little slack in the economy there should be a gradual upward path for cost pressures.
“But I have to say that I have relatively little tolerance for further downside surprises and should downside surprises continue then I think we will get relatively quickly to a point where I would find it appropriate to respond to it.”
“I think the exchange rate is falling because of increased uncertainty about what is going to happen in the period leading up to or the period following the referendum.
“It is possible that at some point that increased uncertainty from foreign exchange investors also ends up manifesting itself in increased uncertainty by households and businesses which may or may not reduce or delay their spending.”
On current account deficit:
“The UK’s current account deficit is still very large, my interpretation of why it is there is that it is in part a side effect of the economic underperformance in the euro zone.
“It is not primarily because of our trade deficit. I think we have to be at least open to the possibility that that current account, is going to persist, that particular source of it and then ultimately what we need is in order to offset that ... we need to run a bigger trade surplus than we would have run in the past.”
BOE’S DEPUTY GOVERNOR MINOUCHE SHAFIK
On bank reserves:
“It’s very difficult to estimate what the demand for reserves will be in the future.
“We know what the current level is...The last time we asked them how much to expect for the future, they said ‘about the same as what we hold now’. But of course that’s a sort of easy answer.”
“My expectation is that it will be in the range of between 7 percent of GDP and 22 percent of GDP, it will be at the higher end of that range, given increased demand for reserves, but we can’t give (a) precise number now until we’ve move on to a different state of the world.”
Reporting by James Davey and Kate Holton
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