-Adds Detail To Version Transmitted At 1149 GMT
-BOE Broadbent Says Coupon Transfer, CPI Stopped Him Voting For More QE
-BOE Fisher: CPI More Important To My Vote Than Coupon Transfers

LONDON (MNI) – The controversial transfer of gilt coupon cash from
the Bank of England’s Asset Purchase Facility to the Treasury, worth
some stg35 billion over this fiscal year and next, was a factor in some
MPC members’ vote on further stimulus at the November meeting.

Ben Broadbent told the Treasury Select Committee that he had gone
into the November meeting expecting to vote for more QE but was
dissuaded by the news of the coupon transfers and the higher than
expected October CPI print. In a recent interview David Miles, who voted
for stg25 billion of extra QE, said he would probably have voted for a
lot more if it hadn’t been for the coupon transfers.

The stance of Broadbent and Miles supports the argument of BOE
Governor Mervyn King that, contrary to the views of some pundits, the QE
transfer does not impact on the MPC’s freedom to set the monetary
policy stance as members just factor it into their decision making.

At the November meeting, only Miles ended up voting for more QE.

“I went into that meeting, if anything, feeling like I was going
to vote for more asset purchases,” Broadbent said.

“The economy had turned down, the output indicators had really
weakened … There were two things that made me pause and made me vote
not to increase asset purchases. One was, as you say, that we already
had some monetary easing effectively through this coupon transfer…
two, inflation was stronger than we expected and it was stronger for
reasons that were likely to persist into future years and for those two
reasons I decided not to vote for more asset purchases,” Broadbent
added.

BOE Executive Director Markets Paul Fisher, however, said the
inflation data was more important to his decision than the news on the
coupon transfers.

King, however, said he didn’t want to get into fine tuning in
reaction to the coupon transfer, while stressing the MPC was free to
respond to it.

“It (the coupon transfer) does not in any way effect our ability to
set monetary policy. That would have been a very serious problem if that
had arisen and then I would have talked publicly about the consequences
of any decision that would constrain the ability of the MPC to set
monetary policy,” King told the TSC.

King also downplayed the impact of the coupon transfers on the
public finances.

He said he hoped the money would not be used to give the government
any new options on the public finances, as it would have to be repaid
eventually. There has been speculation among analysts it could make the
difference between the government meeting or missing its debt rule.

King defended the Treasury’s right to take the coupon money, as it
indemnifies the APF, but he does not used for a fiscal fix.

“I would say some time in the first half of October (when the QE
coupon transfer was first discussed)… I think the view that we took
was that the money in the fund, the APF, does belong to the Treasury.
They’ve indemnified the entire facility, the money there belongs to
them,” King said.

“What I did make very clear to the Treasury was that I thought that
it had no impact at all on the long-run fiscal position and there was
no benefit to the taxpayer from making this change,” he added.

King said he hoped the independent Office for Budget
Responsibility, which will issue its updated public finance forecasts on
December 5, will make it clear the coupon transfers are fiscally neutral
longer term.

“I think it’s very clear, I suspect the OBR will say this, I hope
they will say this, this does not give any one any options. It merely is
taking cash in one year with a clear commitment to have to repay it in
the next,” King said.

“Any impact it has on borrowing this year will be offset by, other
things being equal, a higher borrowing need down the road. It doesn’t
have any impact on the long-term fiscal position,” he added.

–London newsroom: 00 44 20 7862 7491; e-mail: wwilkes@marketnews.com
drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]