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5 Jul 2013
Flash: BoE wants monetary activism – RBS
FXstreet.com (New York) - Amid the hype, speculation and uncertainty around what the Carney-led BoE would deliver today, the core point should not be lost: the Treasury wants ‘monetary activism’, has written this objective into the MPC’s remit, and has hired Mark Carney to implement it, notes Ross Walker an Economist at RBS.
Mark Carney will not have disappointed the Chancellor, using his first opportunity to send out an unambiguously dovish policy signal. According to Walker, “We expect the Carney-led BoE to have a more pronounced dovish bias and for Carney to lean against the central bank’s natural inclination for policy pre-emption until ‘escape velocity’ has been secured. August’s policy decision is now a much closer call – with the risks shifting sharply towards a £25bn QE gilt purchase extension.”
Still, we overall expect monetary policy changes under a Carney-led BoE are likely to be at the more conservative end of the spectrum in the sense that we do not expect any early move towards large-scale QE-financed private asset purchases (a ‘UK TARP’). Rather, conditional forward guidance, the adoption of intermediate thresholds (eg, an unemployment rate threshold), greater detail and transparency vis-à-vis the BoE’s forecasts will emerge, quite possibly backed-up by restarting gilt purchases.
Mark Carney will not have disappointed the Chancellor, using his first opportunity to send out an unambiguously dovish policy signal. According to Walker, “We expect the Carney-led BoE to have a more pronounced dovish bias and for Carney to lean against the central bank’s natural inclination for policy pre-emption until ‘escape velocity’ has been secured. August’s policy decision is now a much closer call – with the risks shifting sharply towards a £25bn QE gilt purchase extension.”
Still, we overall expect monetary policy changes under a Carney-led BoE are likely to be at the more conservative end of the spectrum in the sense that we do not expect any early move towards large-scale QE-financed private asset purchases (a ‘UK TARP’). Rather, conditional forward guidance, the adoption of intermediate thresholds (eg, an unemployment rate threshold), greater detail and transparency vis-à-vis the BoE’s forecasts will emerge, quite possibly backed-up by restarting gilt purchases.