BoE rate-setters wanted Jan rate hike to drive home anti-inflation message |
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Tue, 27 Mar 2007 11:22
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LONDON (AFX) - Bank of England rate-setters wanted January's surprise rate hike to drive home the message that they are serious about reining in inflation.One by one, the five members addressing MPs on the influential Treasury Select Committee said it was important that the increase in the key repo rate to a near six-year high of 5.25 pct helped rein in inflation expectations.While Kate Barker said it made 'sense' to make it 'absolutely clear' that the Monetary Policy Committee was serious about getting inflation back to the 2 pct target, John Gieve said the hike was important in 'signalling a message' that inflation will come down following a long period of being above target.Meanwhile, Andrew Sentance said the evidence in the two months preceding the rate hike on Jan 11 had shown demand and inflation picking up, providing further evidence that the two quarter point rate hikes in 2006 had 'not been enough'.Rachel Lomax, one of the four rate-setters who did not vote for the rate hike, said the evidence 'wasn't quite there' even though the MPC had advance notice of the December inflation data, which showed the CPI measure up at a 12-year high of 3 pct.If it had been 0.1 percentage point higher, the governor Mervyn King would have had to write a letter to Chancellor of the Exchequer Gordon Brown explaining why inflation had deviated by more than one percentage point from target.'I did consider whether that was a reason for bringing the decision forward,' she said.'On balance it wasn't. We need to look at these sharp month to month movements in light of longer term developments,' she added.Meanwhile, King dismissed suggestions that there had been a 'failure of communications' between the MPC and sterling markets.King said he though this failure had been over-stated, noting that most City commentators were predicting an increase in February.He added that he did not see the point why analysts made monthly predictions when the MPC did not.pan.pylas@thomson.compp/slmCOPYRIGHTCopyright AFX News Limited 2007. All rights reserved.The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited
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BoE MPC voted by 7-to-2 majority to keep repo rate unchanged at 5.25 pct in Feb 