BoE´s Weale thinks Sterling may need to weaken

Date: Friday 22 Jun 2012

In a speech last night, at the University of Surrey, Bank of England policy-maker Martin Weale expressed his preference for the new credit easing measures recently announced by the central bank over quantitative easing. He also seemed to indicate that there is room for further monetary stimulus, adding that Sterling may need to weaken.

Thus, and as regards the Bank´s new instruments, the so-called Extended Collateral Term Repo (ECTR), and the new funding-for-lending scheme, he believes they are important steps to provide extra monetary support for the financial system and the economy. In fact, he goes so far as to say that, “I suspect that, pound for pound, the new interventions will do more to support the economy than would deploying the same sums on further asset purchases."

As regards the scope for further monetary easing, he indicated that the retreat in raw material prices lessens the risk of above target inflation becoming entrenched and that, "this in turn means that there is appreciably more room for further monetary stimulus."

Yet what is most eye-catching, and perhaps also most relevant, are his remarks regarding the exchange rate, an extremely sensitive topic for central bankers. More specifically, he said that, "the trade deficit will need to close further and sometimes I think the exchange rate might need to be more competitive than it is at the moment in order to help that."

AB

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