Bank of England suppresses speech on financial system's (in)stability


Bank Pulls Speech to Quell Instability

By Edmund Conway
The Telegraph, London
Friday, August 17, 2007

The Bank of England has taken the unusual step of withholding a speech by a key executive for fear of adding to market insecurity.

It had been planning to release a speech by its financial stability chief, Nigel Jenkinson, to fellow central bankers on Monday, but has pulled its publication at the last minute.

The revelation is the latest evidence of the Bank's pointed decision to maintain silence in the face of the market instability.

It came as a slew of economists cut their interest rate forecasts and predicted that the Bank's Monetary Policy Committee will not raise borrowing costs again.

Mr Jenkinson's speech at the Reserve Bank of Australia Conference in Sydney is entitled "The Financial System: Structure and Resilience." The bank said he will still make the speech but it will not be released publicly.

Mr Jenkinson's last major speech some months ago warned about "the vulnerability of the financial system to a sharp change in conditions," and cautioned lenders about their appetite for risk.

With the tone in the market having swung dramatically from optimism to pessimism in recent weeks, the bank judged that there was a risk the forthcoming speech would stir up the markets unduly.

Whereas the European Central Bank and the Federal Reserve have both pumped billions of euros and dollars into their markets to prevent any banks from suffering unduly, the Bank of England has done nothing other than point borrowers toward its emergency credit facility, which charges a penal rate of interest. The bank fears that too much of this kind of action can panic the markets.

With the nervousness persisting for another week, speculation is growing that the bank will shelve its apparent plans to lift interest rates again to 6 percent.

Michael Saunders, chief UK economist at Citigroup, said: "The outlook has changed. Our prior view that the MPC will hike to 6 percent has been overtaken by financial market turmoil and soft data (especially the CPI). We now expect that 5.75 percent is the peak, with an extended rate plateau."

Malcolm Barr, UK economist at JP Morgan, said: "The tightening in credit conditions and the Fed's response to it is enough to suggest a move up to 6 percent no longer looks likely this year."

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