A top Bank of England official today said the should resist pressure to combine its financial and monetary policy committees because of fears it would diminish the importance of difficult-to-measure stability concerns.
Ben Broadbent, the deputy governor in charge of banking supervision, today argued that joining the two committees would put too much emphasis on stable inflation and growth.
A possible combination of the committees has been posed periodically since the financial policy committee (FPC) was created in 2010 in the aftermath of the financial crisis, as the actions of the monetary policy committee (MPC) have significant effects on financial stability, and vice versa.
However, in a speech delivered to a conference in Australia by video link, Broadbent said: “The risk is that a single committee would pay too much attention to its more verifiable objectives – the cyclical stabilisation of inflation and growth, currently allocated in the main to the monetary policymaker – and too little to financial stability.”
The MPC has an objective to maintain inflation at around two per cent annually, while also taking into account the effects on growth, but the FPC has the vaguer goals of “monitoring and removing or reducing systemic risk”.
However, Broadbent, who currently sits on both the committees, said it was right for the the Bank of England to have a joint oversight role, with both sides informing the other.
He said: “Outright conflicts between the two sets of objectives are unlikely to occur that frequently”.
Broadbent also rejected criticisms that loose monetary policy since the financial crisis has fuelled “unsustainable booms” in lending or asset prices, a common criticism of the quantitative easing programme of bond-buying in particular.
His defence of the Banks policy follows a related argument by chief economist and fellow MPC member Andy Haldane that monetary policy has not contributed to a rise in inequality since the financial crisis because of its role in keeping unemployment low.