Shafik to Testify as BOE Prepares to Exit Crisis-Era Stimulus

Nemat Shafik, who’s set to join the Bank of England’s three main policy committees as head of banking and markets, may give clues today about her leanings as officials move toward the first rate increase in seven years.

Shafik will testify to lawmakers in London before taking part in her first Monetary Policy Committee meeting next month as the panel shifts closer to raising borrowing costs. Her addition as a fourth deputy to Governor Mark Carney in a newly created role marks the BOE’s latest attempt to boost oversight after it was dragged into the foreign-exchange rigging scandal.

The former International Monetary Fund official begins work at a time when policy makers are debating how long they can keep borrowing costs at a record low without letting inflation build. She will have to take a stance on when the BOE should raise its key rate. Then, if the economy continues to improve, she’ll oversee the BOE’s exit from quantitative easing.

“She’s got a very full inbox,” said Philip Rush, an economist at Nomura International Plc in London. “She’s a bit of an unknown quantity as far as her views on U.K. monetary policy are concerned. It would be lovely to hear when she thinks it’ll be appropriate to start removing stimulus, but realistically I think she’ll toe the public line” at the hearing, he said.

Shafik’s first task will be to “conduct a root-and-branch review of how we conduct market intelligence,” Carney said on March 11. A week earlier, the BOE announced an internal inquiry into allegations officials knew about currency manipulation and that it had suspended an employee for potentially failing to escalate issues, without elaborating.

‘Eminently Qualified’

As well as being an MPC member, Shafik, 51, will have seats on the Financial Policy Committee and the Prudential Regulation Authority’s board. That makes her, along with Carney and Jon Cunliffe, deputy governor for financial stability, one of only three people, and the only woman, who will sit on all three panels.

“There’s a diversity issue, but just on the basis of her experience, I think she is eminently qualified,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam and a former Treasury official. “On top of that, you get someone with different types of experience.”

Shafik is scheduled to testify to Parliament’s Treasury Committee at 2:15 p.m. in London. Questioning may focus on market conduct issues, such as foreign-exchange manipulation, and how the BOE will go about unwinding stimulus, Nomura’s Rush said.

She may also face questioning on her views on the economy and its potential to keep growing without fueling inflation pressures, a debate that centers on estimates of spare capacity.

Rate Bets

The National Institute of Economic and Social Research estimated yesterday that gross domestic product grew 0.9 percent in the second quarter, which would be the fastest in four years and take output back above its early 2008 peak. Investors are betting the BOE will begin raising rates by February, Sonia forward contracts show.

Shafik’s appointment comes at a time of flux for the MPC, with three new members joining this summer that could shift the policy debate.

She replaces former Markets Director Paul Fisher on the committee from Aug. 1 and will be responsible for managing the BOE’s near-record balance sheet. She will help design a plan for selling the 375 billion pounds ($642 billion) of assets bought via QE, which officials say will only happen after several rate increases.

Shafik will represent the central bank in international forums, including working with the IMF, where she had been deputy managing director since 2011, other central banks and the Bank for International Settlements.

“Her appointment was not because she had any particular insight into the setting of U.K. monetary policy,” Rush said. She “has some previous experience of monetary policy outside of the U.K. complex and she is well situated on the global stage and can assist at a Group of 20 level.”

Before it's here, it's on the Bloomberg Terminal.