LONDON (MNI) – Interest rates have to stay low for now in order to
get back to steady growth, Bank of England Governor Mervyn King said in
a BBC Radio 4 question and answer session.

King said hiking rates would make everyone worse off, that
policymakers had managed to reduce sterling’s value and that this had
helped export growth, although exporters faced a difficult time because
of the weakness of the euro area.

Asked about the Monetary Policy Committee’s policy of quantitative
easing hitting pensioners, by driving down interest rates and Gilt
yields, King said adopting the alternative route of tighter policy would
have hurt everyone.

“We are in a difficult position. We could raise interest rates. I
am not sure that would help anybody because it would almost certainly
turn the economy into a deep recession, increase unemployment, lower the
dividends which are used to finance pension payments and I think
everybody would end up worse off,” King said.

“We have a difficult challenge. Our job is to do our best to try
and steer the economy back to a steady growth path and for the time
being that means low interest rates but eventually I promise that we
will get back to a more normal world when interest rates are at the
level that your questioner would like to see them at,” he added.

The BOE governor endorsed the broad thrust of fiscal policy, saying
it was striking a balance between winning market confidence while not
reducing the deficit so fast it tips the economy into a deep recession.

“We are striking that balance,” he said.

He highlighted the challenge facing exporters, and said rebalancing
the economy was a medium term challenge.

“We have been able to lower the value of sterling to make the
British economy more competitive and we are getting growth from the
export sector. Now it is difficult because … our biggest trading
partner is the euro area, which itself is in trouble but these problems
have to be tackled in a medium- to long-term setting.”

For further information contact David Robinson on 4420 7862 7491
or e-mail: drobinson@marketnews.com.

[TOPICS: M$$BE$]