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BoE's Weale: Not Very Enthusiastic About Reducing 7% Threshold To 6.5%

Bank of England policymaker Martin Weale said reducing the central bank's unemployment rate threshold of 7 percent to 6.5 percent may not achieve the purpose of forward guidance as that level could also be quickly overtaken by events, a regional British daily reported on Friday.

"I do not feel terribly enthusiastic about a reduction from 7 percent to 6.5 percent," Weale said in an interview to the East Anglian Daily Times. "The purpose of Forward Guidance was to create greater certainty."

Weale expects interest rates to remain low for sometime, even after a steep fall in unemployment. In its Forward Guidance announced in August, the central bank said the Monetary Policy Committee will not hike the record low 0.50 percent interest rate until unemployment comes down to 7 percent.

The BoE had expected that the jobless rate would not hit the threshold until 2016. However, the jobless rate eased faster-than-expected in recent months and has neared the 7 percent threshold.

Weale, who was the only rate-setter to vote against the forward guidance, said he was then worried about giving an impression that the bank was too tolerant of a prolonged period of above-target inflation. He also acknowledged that he had not foreseen the subsequent fall in inflation to the 2 percent target, which was "very welcome".

The policymaker pointed out that the unemployment rate is just one of the many factors which would lead to any rate hike. Further, there was scope for rates to remain low for a while as wage hikes are still well below inflation, Weale said.

He also does not expect the bank to start unwinding its quantitative easing scheme until interest rates return to a more normal level of 2.5 - 3 percent. Such levels would give the MPC room to cut rates to support economy should any stimulus withdrawal result in negative impacts.

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