BoE’s Saunders: Quicker QT Helps Limit Overall Tightening Cycle

The Bank of England’s Michael Saunders says vote for a 50bp hike in February ”does not necessarily imply that I believe that the level of rates one or two years ahead will be higher than the yield curve used for the February MPR.”

Saunders has pointed out that it is important to distinguish between the pace of tightening and the level of rates at the end of a tightening cycle.

Key Comments
Saunders says quicker tightening early on could help limit the overall tightening cycle

Vote for a 50bp hike in February does not necessarily imply that I would vote for a 50bp hike in the event that further tightening is required.

Saunders says case for policy to move in a larger step probably is greater when bank rate is clearly further away from the approximate level that, if maintained, would return inflation to target.

Saunders says not in favour of aiming to restore the lost potential output by “running the economy hot”.

Saunders says running the economy hot” would simply produce an even more persistent inflation overshoot.

According to Saunders, maintaining a relatively loose policy stance under current conditions would be likely to produce a further undesirable rise in inflation expectations.

Says such an outcome would be costly to reverse and could limit the scope for prompt monetary easing the next time the economy needs support.

The comments of the policymaker offered on the back of a risk-off theme in markets on Tuesday.

The comments from Saunders, however, serve to stall the slide with the price a touch higher as it starts to correct from the session lows of 1.3298. The price is now near 1.3310.