The general tone of the minutes of the Bank of England’s Monetary Policy Commitee meeting, held on sixth and seventh of March, leads one to think the MPC had become really quite concerned that the market was beginning to develop serious doubts about the Bank of England’s general commitment to achieve a return to its two percent inflation target, even over the medium term. Specifically, the MPC seems to have been keen to stress that its ‘hands-off’ policy of benign neglect with regard to the plummeting value of sterling did have some limits.There were various references to the inflationary effect of a lower sterling and a reiteration of their commitment to the containment of inflation –
“Moreover, the depreciation of sterling during the month, if it persisted, would add a little to inflationary pressures.” and “Prospective movements in the exchange rate that reflected perceptions that monetary policy would remain excessively loose, or that the MPC’s commitment to meeting the inflation target in the medium term was diminished, would be a different matter.”
and “As yet,indicators of inflation expectations had remained contained, notwithstanding very small increases in market-based indicators following the Committee’s recent policy statements, and wage growth was weak. But the Committee would continue to watch closely for any signs that inflation expectations had risen to a point inconsistent with, or making more difficult and costly, the task of meeting the 2% inflation target in the medium term.”
However, I see all of this for what it is, a ‘talking the talk’ exercise aimed at reputation preservation; in the same way that successive US Treasury Secretaries have repeated the mantra first coined by Robert Rubin that, ‘a strong dollar is in US interests’; they don’t really mean it! The commitee still only voted by majority to maintain the current level of quantntative easing, with the governor, Paul Fisher and David Miles once again wanting to see an increase of GBP 25 billion-so i don’t see these minutes as any sort of game-changer.
As the minutes say – “But members drew different conclusions about the best policy setting to bring inflation back to the target in the medium term while continuing to support output and employment.”
SAXO BANK