Thursday, January 17, 2008
Gieve on the credit crisis
Posted by David Smith at 02:30 PM
Category: Thoughts and responses

In a speech Sir John Gieve, the Bank of England's deputy governor, notes that a tightening of credit conditions by banks in the early 1990s led to a 2% drop in GDP relative to what it would have been. Then, he says, the authorities were constrained from cutting interest rates by membership of the European exchange rate mechanism. The question this time is whether the Bank will be constrained by the short-term rise in inflation he also warns of. The speech can be accessed here.

Comments

HI David

We'll IMHO they shouldn't be constrained by "short term" inflationary pressures because

1) They are suppose to target inflation 2 years out, as they can't do anything about tomorrows inflation
2) In 2004 they were raising rates when inflation was 1.1%, so if there is no bias (ie prefering CPI to be below target), then they should excercise the same thought process.

Anyway we shall see

Posted by: kingofnowhere at January 18, 2008 07:46 AM