BOE’s Saunders: Short term currency volatility should not be a concern to policymakers

Bank of England (BOE) policy maker Saunders is on the wires now, via Reuters, testifying before the Treasury Select Committee on Tuesday.

Key Headlines:

Short term ccy volatility should not be a concern to policymakers

Largest part of drop in GBP is due to adjustment of expectations for UK due to Brexit but not sole reason

Dilemma for MPC would be much sharper if inflation expectations and pay growth were to pick up unexpectedly

Mon pol is burdened but not yet over burdened

BOE is trying to look through ccy impact on inflation

Would expect the MPC to tolerate a modest-ccy driven inflation overshoot in the next 2-3 years

Negative rates should be kept on review

Would be very loathe to tweak BOE inflation=targeting framework

Would not be surprised if pound fell further given scale and persistence of current account deficit