BoE mak­ing no judg­ments about EU ref­er­en­dum out­come

The Pak Banker - - COMPANIES/BOSS -

Mark Car­ney said Bank of Eng­land of­fi­cials have room to loosen mon­e­tary pol­icy if needed as con­cerns that Bri­tain may leave the Euro­pean Union piled fur­ther pres­sure on the pound. "If we were in a po­si­tion where the econ­omy needed ad­di­tional stim­u­lus, we do have con­sid­er­able room," the cen­tral bank gov­er­nor told law­mak­ers in Lon­don on Tues­day. Of­fi­cials have "con­ven­tional pol­icy" such as rate cut or quan­ti­ta­tive eas­ing or they could "ad­just" the hori­zon over which the BoE aims to re­turn in­fla­tion to the 2 per­cent tar­get, he said.

The pound re­mained near its low­est level against the dol­lar since 2009, af­ter plung­ing on Mon­day. With traders al­ready push­ing back bets on the tim­ing of a BOE in­ter­est-rate in­crease, the prospect of the U.K. leav­ing the world's largest sin­gle mar­ket is cre­at­ing fur­ther un­cer­tainty.

Pol­icy maker Gert­jan Vlieghe, tes­ti­fy­ing along­side Car­ney with Deputy Gov­er­nor Mi­nouche Shafik and of­fi­cial Martin Weale, said that if the out­look wors­ens, he would con­sider vot­ing to cut the key BOE rate from its cur­rent record low of 0.5 per­cent. "I have rel­a­tively lit­tle tol­er­ance for fur­ther down­side sur­prises," Vlieghe told the law­mak­ers. "Should down­side sur­prises con­tinue then I think we will get rel- atively quickly to a point where I find ap­pro­pri­ate to re­spond to it."

The BOE has kept its bench­mark rate on hold for al­most seven years. The mar­ketyield curve shows a 25 ba­sis-point rise is not priced in un­til 2019, with in­vestors zon­ing in on the prospect of a lower rate.

The pound fell 0.4 per­cent to $1.4089 as of 12:08 a.m. Lon­don time. The cur­rency dropped to $1.4058 on Mon­day. Gauges of pound volatil­ity ver­sus both the dol­lar and euro have surged to the high­est lev­els since 2011, while the op­tions mar­ket sig­naled more losses ahead for the pound.

"It's safe to say that there is an el­e­ment of ref­er­en­dum pre­mium" in ster­ling, Car­ney said. While re­cent moves in op­tions have "spiked to lev­els con­sis­tent with around the height of the Scot­tish ref­er­en­dum," the per­sis­tence of the move is what mat­ters," he said. Shafik told law­mak­ers that the ex­change-rate changes have lagged ef­fects so there is no me­chan­i­cal link be­tween the mar­ket moves and in­ter­est-rate pol­icy. In writ­ten tes­ti­mony, she said she "con­tin­ued to be­lieve it more likely than not that the next move in bank rate will be up - even if un­cer­tainty about the be­hav­ior of wage growth makes the tim­ing of that move un­cer­tain."

Vlieghe said of­fi­cials don't think about the cur­rency "in iso­la­tion." "We have to

it think about why the ex­change rate is fall­ing, we think it's fall­ing be­cause of in­creased un­cer­tainty," Vlieghe said. While so far there's lit­tle ev­i­dence of an eco­nomic im­pact, a weaker ex­change rate "might partly off­set other weak­ness in the econ­omy," he said. The chair­man of the Trea­sury Com­mit­tee, An­drew Tyrie, said Car­ney and BoE Deputy Gov­er­nor for Fi­nan­cial Sta­bil­ity Jon Cun­liffe will ap­pear be­fore law­mak­ers on March 8 in a ses­sion de­voted to so-called 'Brexit.'

Mean­while, Bank of Eng­land Gov­er­nor Mark Car­ney said on Tues­day the cen­tral bank was not mak­ing judg­ments about the out­come of Bri­tain's ref­er­en­dum on EU mem­ber­ship, but noted moves in ster­ling since the date of the vote was set.

"We're treat­ing this vote ex­actly how we treat any other political event, which is not to make a judg­ment on the out­come and as­sume the sta­tus quo con­tin­ues," Car­ney told law­mak­ers. "I will note though that there have been moves in ster­ling since it's be­come ... clear (about) the tim­ing of the ref­er­en­dum."

He said hedg­ing from in­vestors against fu­ture falls in ster­ling around the ref­er­en­dum date on June 23 had spiked to lev­els seen around the Scot­tish in­de­pen­dence ref­er­en­dum, adding the hedg­ing was fo­cused on the ster­ling-dol­lar rate.

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