BOE’s King Says Higher Interest Rates Would Exacerbate Debt Woes

Taking a page from the Fed’s playbook?

The BOE has seen the Fed effectively scare portfolio managers and speculators out of the dollar with QE, which they know does nothing apart from just that, and may in fact even be fundamentally supportive of the dollar.

So desirous of a weaker currency, why not make a knowingly silly statement like this and manipulate portfolio managers who don’t know any better into shedding pounds in this increasingly bizarre international display of managing expectations?

And even if I’m giving them far too much credit for cleverness, the result is the same none the less…

BOE’s King Says Higher Interest Rates Would Exacerbate Debt Woes

By Jim Brunsden

May 3 (Bloomberg) — Bank of England Governor Mervyn King said high debt levels pose “massive” economic challenges that would be exacerbated by higher interest rates.

“The economic consequences of high-level indebtedness now would become more severe if rates were to rise,” King said yesterday at a committee of the European Parliament in Brussels. “It is the main reason why interest rates are so low.”

Bank of England policy makers are split four ways over monetary policy. The central bank probably will leave the key interest rate at a record low of 0.5 percent at the next rate meeting on May 5, according to the median of 43 forecasts in a Bloomberg News survey of economists.

Last month, Andrew Sentance voted for an increase to 1 percent, Martin Weale and Spencer Dale for a quarter-percentage- point rise and Adam Posen for expansion of the bond-purchase program. The rest, including King, voted for no change.

“The problem of leverage, the sheer volume of debt in the economy, is still very large and this poses massive macro-economic challenges,” King said yesterday. “I think these macro-economic challenges will last many years.”

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