Hard for Bank of England to fine-tune end of rate-tightening: BOE

CENTRAL banks like the Bank of England will find it hard to communicate the end of their rate-tightening cycle and should not sweat over this at the expense of taking steps to bring down inflation, BOE policymaker Catherine Mann said on Monday (Jun 12).

“Fine-tuning is something that monetary policy is not very good at if the ultimate objective is to focus on inflation,” Mann said at an event hosted by US political strategists Signum Global Advisors.

“I called it a policy boogie ... you hike, you cut, you hold and you’re just kind of giving signals that are hard to determine and hard for the market to understand why you’re doing it,” she added.

Mann declined to be drawn in a question-and-answer session on whether financial markets were right to expect a steady series of further rate rises from the BOE which would take interest rates to 5.5 per cent from 4.5 per cent currently.

Many economists, by contrast, expect the BoE to stop sooner –or if not, to pause to assess the impact of the rapid series of rate rises.

Last week, the Bank of Canada surprised many investors by raising rates, after keeping them on hold since January.

Mann was a keen supporter of rate rises last year – often voting for bigger increases than other members of the Monetary Policy Committee – but said she drew some comfort from the fact that household inflation expectations were now falling.

However, she said these expectations were still too high to be consistent with inflation returning to its 2 per cent target, and noted stronger-than-expected price rises for food, services and some imported goods since the BoE’s last rate meeting.

Economic activity had also continued to grow modestly and in line with expectations, she added.

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The BOE will announce its next interest rate decision on June 22. REUTERS