UPDATE 1-Bank of England's Haldane eyes asset prices, gives few clues on rates

Wed Apr 30, 2014 2:57pm EDT

Related Topics

* Future BoE chief economist stresses asset prices, banks

* Haldane gives no clear signal of monetary policy stance

* Haldane - BoE measure of slack about right, plays it down

* Haldane sees case to spell out rate path more clearly (Adds quote, comments on inflation target, forward guidance and threats to economy)

By David Milliken and Huw Jones

LONDON, April 30 (Reuters) - The Bank of England's next chief economist said on Wednesday he wanted to focus more on the role of asset prices to assess the state of the economy, though he gave few clues on when he thought interest rates should rise.

Andy Haldane, who currently heads the Bank of England team that monitors financial stability, declined to say where he would place himself compared to the "centre of gravity" of the BoE's Monetary Policy Committee (MPC).

"I will certainly come at this with the same independent mind I have brought to financial stability and regulatory issues," he told lawmakers at a hearing before his new appointment. "I can certainly assure you that I will not come in toeing a particular line."

He said the central bank's current estimate of how much slack there was in the economy was reasonable, but that the role of spare capacity in driving future inflation was sometimes overstated.

In contrast, even after the financial crisis, not enough attention was paid to banks, asset prices and international capital flows, he said.

"Financial factors in general, and asset prices in particular, play a more central role in explaining the dynamics of the economy than is typically reflected in macro-economic models," he said.

He also said that he hoped the BoE would start to use an inflation measure which fully reflects housing costs for its inflation target, rather than the existing consumer price index.

Economists are watching closely for clues as to Haldane's views on questions such as how long the BoE should keep interest rates at their record low levels as Britain's economic recovery picks up speed.

On the question of forward guidance - or the BoE's policy of giving a steer on how long it likely to keep rates on hold - Haldane said he could see merit in doing more to spell out the path of interest rates.

Haldane said interest rates were widely expected to rise only gradually and not immediately, and that this was the most important element of the BoE's forward guidance.

He declined to say whether he would have voted to support the central bank's first round of forward guidance if he had been on the MPC in August, when it committed to keep rates on hold at least until inflation fell to 7 percent.

BOE SHAKE-UP

Haldane's appointment is part of a wider shake-up at the BoE undertaken by Governor Mark Carney who wants to bring the bank's monetary and financial stability functions closer together.

Haldane is effectively swapping jobs with the current BoE chief economist, Spencer Dale. Dale has been one of the more hawkish members of the MPC, at times voting in favour of higher interest rates and smaller asset purchases.

Dale told lawmakers on Wednesday that while Britain's housing market was not showing signs of a price bubble at the moment, policymakers "should be nervous" about the pace of the recovery.

Britain's statistics agency recently created a version of the consumer price index which includes housing, known as the CPIH. It was up 1.5 percent in the 12 months to March, a bit slower than a 1.6 percent rise for the CPI.

However for the BoE to switch the inflation measure it uses, as Haldene advocates, would need the approval of Britain's finance ministry, and Haldane said he would want to monitor CPIH for around 18 months before making a firm recommendation.

He also cited a long list of threats to the British economy, including the risk of a sharp slowdown in China, a disorderly tightening of global monetary policy and a further sharp rise in British house prices.

* For Haldane and Dale's statements to the British parliament's Treasury Committee, see here (Writing by William Schomberg; Editing by Susan Fenton)

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