LONDON (Reuters) - Bank of England Governor Mervyn King said on Thursday that the central bank was not seeking any further fall in the level of sterling which now appeared to be fairly valued.
The pound hit a two-and-a-half year low against the dollar on Tuesday, down more than 8 percent since the start of the year, though it surged 1 percent in the hours before ITV News released King’s comments, made in a pre-recorded interview.
“We’re certainly not looking to push sterling down,” King told ITV News in an interview. “We are moving to a properly valued exchange rate. I think we’re probably there.”
Currency strategists attributed much of sterling’s weakness this year to comments by the central bank that it was willing to tolerate higher inflation while growth was weak, as well as talk by some policymakers that seemed to back a weaker pound.
However, King said that sterling was now back to its level in the immediate aftermath of the financial crisis, and that its recent falls had reversed an appreciation in 2012.
“Basically we’re at the same level we were after the impact of the financial crisis. The markets judged then that was the right level for the UK looking ahead and they seem to judge that now. We just have to accept that,” he added.
On inflation, King reiterated that the central bank was prepared to look through short-term factors that kept inflation - currently 2.7 percent - above its 2 percent target.
However, he said this did not represent any weakening in the central bank’s medium-term commitment to keep prices in check.
“We’re determined to bring inflation back to the target and I‘m quite confident that over the next two or three years the Monetary Policy Committee will pursue the policies needed to achieve just that,” he said.
King steps down at the end of June, to be succeeded by Mark Carney, who currently heads the Bank of Canada and has sometimes been viewed as open to a more flexible form of inflation targeting than the Bank practices.
With the UK economy in the doldrums, many in the financial markets expect Chancellor George Osborne to sanction a more growth-oriented monetary policy as soon as next week, when he renews the Bank’s policy mandate at his March 20 budget.
King told ITN he had spoken with Osborne about supply-side reforms to boost growth - something he has urged before but again declined to specify in detail.
Last month, the central bank forecast it would already take three years before inflation returned to target, and saw a slow but steady recovery as Britain’s economy re-orientated itself towards exports.
King used similar language in the interview on Thursday.
“There is momentum behind the recovery that’s coming and I think that during the course of 2013 we will see the recovery come into sight,” King was quoted as saying on ITV’s website.
“If you just take away for the moment what happened in the North Sea oil production and in construction, the UK economy even last year grew by 1.5 percent,” he added.
King’s cautiously positive tone comes despite the fact that Britain’s economy contracted in the last three months of 2012, and weak economic data early in 2013 has put the country at risk of its third recession in four years.
King himself voted to restart the central bank’s asset purchase programme last month, but failed to find backing from most other members of the BoE’s Monetary Policy Committee.
Minutes of this month’s meeting, to be released on March 20, will show whether he backed further asset purchases again.
Reporting by David Milliken; Editing by Olesya Dmitracova and Michael Roddy