BoE's Bailey pushes back against idea of rate hike being inevitable

By David Milliken and Sam Tobin

LONDON, ‌Sept 8 (Reuters) - Bank ​of ​England Governor Andrew Bailey said on Tuesday he wanted to dispel the idea that it's just a matter of time before the central bank raises interest rates, ‌rather than a possibility that hinges on economic and geopolitical developments.

Bailey said investors ⁠had priced in rate hikes over and above what can be explained by the most likely path for BoE policy alone — ‌a "risk premium" that reflected reasonable ‌worries in the market about further energy price increases.

In a hearing before lawmakers in parliament, Bailey and three other members of the Monetary Policy Committee mostly stuck to their existing positions ​ahead of the BoE's interest rate announcement on September 17.

"When you look at the market curve, and when you break the market curve down as far as we can do ... ⁠they've got essentially a risk premium in there," Bailey told lawmakers from parliament's Treasury Committee.

"What I want to dispel is the idea ​that we've really got a secret plan, we know where we're going to go to and it's unconditional," Bailey said of expectations that the BoE ​would raise rates.

MARKETS EXPECT BOE RATE HIKE BEFORE END ‌OF YEAR

The market curve on Tuesday showed one quarter-percentage-point BoE rate hike priced in by the end of this year, and two more for 2027.

Unlike ⁠the European Central Bank, which raised rates in June and is expected to do so again on Thursday, the BoE has kept rates on hold since the outbreak of the Iran war at the end of ⁠February. Investors see only a slim chance of a BoE hike next week.

Bailey said the economic data since the ​central bank published forecasts in July had come in a bit stronger than expected, and he described activity as "reasonably resilient".

BoE Deputy Governor Dave Ramsden and external MPC members Megan Greene and Alan Taylor also attended the hearing ‌on Tuesday.

Ramsden said he viewed the backdrop for domestically generated inflation pressure as "relatively benign", citing labour market data, while Taylor said holding interest rates ‌at restrictive levels provided "insurance" against external risks.

Greene, who voted to raise the Bank Rate from 3.75% to 4.00% ⁠in July, said she worried that ‌the length of the current oil ​price shock could lead to more persistent expectations of higher inflation.

(Reporting by David Milliken and Sam Tobin; Writing by Andy Bruce; Editing by William James and ‌Paul Simao)

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