LONDON (MNI) – The central point of the Bank of England Monetary
Policy Committee’s ultra loose policy is to boost spending and deter
saving, BOE Deputy Governor Charles Bean said Monday.
In comments to Channel 4 News, Bean risked controversy by saying
savers should eat into their capital and spend, and stressed the MPC
wanted to boost consumption.
“It needs to be said that savers shouldn’t necessarily expect to be
able to live just off their income in times when interest rates are low.
It may make sense for them to eat into their capital a bit,” Bean said.
Bean described the MPC’s current approach as setting an “aggressive
policy” designed to deal with a “once-in-a-century” financial crisis.
The fact that holding the Bank Rate at an all time low of 0.5% made
saving unattractive was not a side effect of the policy, but rather
its goal, Bean said.
“I wouldn’t want to call it a side effect. I think it’s important
to realise that actually it’s a key way that monetary policy affects the
economy by affecting the incentive to save,” Bean said,
“What we’re trying to do by our policy is encourage more spending.
Ideally we’d like to see that in the form of more business spending but
part of the mechanism that might encourage that is having more household
spending. So in the short term we want to see households not saving more
but spending more,” he said,
Bean touched on the Keynesian “paradox of thrift” — that if
everyone saves more in a downturn it becomes self-reinforcing. Bean said
it was a “paradox of policy” that while longer term savings rates should
be higher than in the run up to the financial crisis, aiming for lower
savings right now was part of the point of monetary policy
“The Governor [Mervyn King] gets more letters from savers
complaining when we put interest rates down than he does from borrowers
when we put rates up,” Bean. said.
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[TOPICS: M$$BE$,MT$$$$]