June 28 (Bloomberg) -- Bank of England policy maker Adam Posen said it’s wrong for the Bank for International Settlements to say that all central banks need to start raising interest rates to control inflation.
The BIS “just said all central banks should raise rates, and pointed to the U.K.’s above-target past inflation -- nonsense,” Posen said in slides prepared for a speech late yesterday in Aberdeen, Scotland. “In the U.K. and the West more broadly, there is little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations, and oil prices are not yet a one-way bet.”
The BIS said on June 26 that “tighter global monetary policy” is needed to damp price pressures and ward off financial-stability risks. With the Bank of England holding its key rate at a record-low 0.5 percent in June, even as inflation remains at more than double the bank’s target, the BIS said “one wonders how long its current policy can be sustained.”
Posen, who has voted for the central bank to add to its bond purchases, is due to speak alongside Governor Mervyn King at a U.K. Parliament committee at 10 a.m. in London. They will speak about 30 minutes after the Office for National Statistics publishes revised first-quarter gross-domestic-product data. The median forecast of 28 economists in a Bloomberg News survey is for growth of 0.5 percent, matching an earlier estimate.
King defended the bank’s policy stance earlier this month, saying inflation is being boosted by temporary factors such as a surge in oil prices, while weak growth in wages and money supply signal it will ease.
The Monetary Policy Committee is “watching extremely carefully for any signs of a pickup in domestically generated inflation and it will take action as soon as it is appropriate to do so,” King said in the June 15 speech.
Posen said yesterday that while the price of oil “matters for modern economies,” its impact is less than it was 30 years ago. He also downplayed concerns about the U.K. economy’s long- term potential, saying “we should continue to treat U.K. trend growth as largely unchanged.”
Bank of England Deputy Governor Paul Tucker and Chief Economist Spencer Dale will also attend the Parliament hearing. While the majority of the MPC, including Posen, King and Tucker, favors holding rates at a record low, Dale, along with Martin Weale, has voted for a quarter-point increase since February.
Posen said that while some central banks, particularly those with currencies pegged to the U.S. dollar, should raise borrowing costs as circumstances demand, the British economy is at “little risk of inflation, let alone stagflation.”
The conditions that led to stagflation in the 1970s are not evident today, he said, noting that U.K. workers have limited wage-bargaining power and “trend productivity growth is largely undiminished.”
Posen has voted since October to extend the bank’s bond- buying plan, the only one of the nine-member MPC to do so. Minutes of the committee’s June 8-9 meeting showed some officials saw a potential need for further asset purchases as the economic recovery struggles.
--With assistance from Svenja O’Donnell in London. Editors: Fergal O’Brien, Kevin Costelloe
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