- Officials are `happy where we are for now' on policy
- Haldane noted downside risks as recently as September
Bank of England Chief Economist Andy Haldane backed away from his stance on the prospect for an interest-rate cut in the U.K., recognizing the strength of domestic demand and the potential for international headwinds to fade.
“We have a balance of internal and external factors which will determine which way next for interest rates,” Haldane said in an interview with Francine Lacqua on Bloomberg Television on Wednesday. “For now we’re happy where we are and for now that balance looking ahead will determine whether the next move comes sooner or later, indeed whether the next move is up or we stick where we are for now.”
Haldane’s comments at the BOE’s Open Forum in London suggest a shift from a position he established earlier this year, when he said he had “no bias on either the size or direction of future interest-rate moves.” He voted with the majority of the central bank’s policy makers this month to leave the benchmark rate at a record low 0.5 percent, where it’s been for more than six years.
A rate cut “isn’t my central view, it certainly isn’t the MPC’s central view,” he said Wednesday. “But we stand ready to do what’s necessary to get inflation back to target.”
In March, Haldane said the chances of an increase or a cut were “broadly evenly balanced.” His no bias view, expressed three months later, was reinforced as recently as September with remarks that the risks to U.K. growth and inflation were “skewed squarely and significantly to the downside.”
At that time, he also warned the slowdown in emerging markets may turn into the third phase of the financial crisis. The BOE downgraded its assessment of emerging markets last week in its quarterly Inflation Report.
BOE officials are debating when to begin removing the emergency stimulus that’s been in place for more than eight years. When asked in the Bloomberg Television interview about the potential persistence of risks to the U.K. from China, Haldane said the issue “isn’t just a China story.”
“That’s one of the key headwinds to global growth at the moment, and we will track those developments across emerging markets, and of course elsewhere too, very closely,” he said. “Looking ahead, the next three to six months, that will tell us a lot more about what we’re seeing here, whether what we’re seeing here is a temporary weak spot or something more durable.”
Asked in a separate Bloomberg interview about the potential for U.S. and euro-area monetary policy to head in different directions in December, Haldane said divisions aren’t a problem as long as they reflect domestic fundamentals. Financial markets have been factoring in a divergence for some time, he said.
“As long as everyone is doing the right thing from the perspective of their domestic economy then there’s nothing to fear from people moving in opposite directions and that does appear to be the case,” Haldane said. “The vast majority of central banks this year have been in easing mode and in that respect if the Fed were to do something, that would be different from what the vast majority of central banks have been doing.”