Bank of England’s Broadbent Says Market Rate Bets Can Mislead

A senior Bank of England policymaker said on Wednesday that pricing in financial markets for when Britain’s record-low interest rates are likely to rise could be misleading and risked changing quickly.

Deputy Governor Ben Broadbent, in the text of a speech given at a Reuters newsmaker event, also cautioned investors not to “focus obsessively” on the BoE’s inflation forecasts and instead to concentrate on the broader factors driving growth.

The Bank cut interest rates to 0.5 percent in 2009, in the depths of the financial crisis, and has kept them there ever since.

Investors have been repeatedly wrong-footed since the financial crisis over when the BoE will start to raise rates, with guidance overtaken by surprise economic news such as the plunge in global oil prices.

Although wages have begun to rise more strongly recently, inflation remains below zero and markets are betting that the Bank will only raise rates in early 2017.

In his speech, Broadbent noted that yield curves in markets were currently very flat, leaving the timing that they imply for a first rate hike vulnerable to sudden moves.

“Even relatively moderate changes in forward rates, prompted by unexceptional news about the economy, can result in big shifts in the date at which the yield curve first reaches some particular level,” he said.

“But that doesn’t mean the (BoE) Monetary Policy Committee’s views about future policy, over the medium term, have moved so dramatically. If nothing else, this demonstrates the problem with focusing too obsessively on that particular date.”

Reuters

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