Tenreyro said that even if the BoE had perfect
foresight, the long lags involved in changes in interest rates
would have required it to raise rates sharply in the depths of
the COVID-19 pandemic to stop inflation reaching double-digits
last year.
(Reporting by David Milliken; editing by Alistair Smout and
Kate Holton)
(Updates to add context for Tenreyro analogy, background)
April 14 (Reuters) - Bank of England policymaker Silvana
Tenreyro said past interest rate rises would take time to bear
down on inflation, and that it was important not to over-adjust
policy while the impact of these past rate rises was feeding
through.
"We need to be patient," she said at a panel discussion
hosted by the International Monetary Fund in Washington on
Friday. "We don't want to get burned. We don't want to get an
ice-cold shower."
Tenreyro was referring to an analogy made by the Nobel
Prize-winning economist Milton Friedman, who likened setting
economic policy to adjusting the temperature of a shower which
was slow to respond to changes to the taps.
Tenreyro voted against a further BoE rate rise last month,
arguing that past tightening was more than enough and could push
inflation well below target in the medium term.
Financial markets see a roughly two in three chance that the
BoE will raise its main interest rate next month to 4.5% from
4.25%, which would be its 12th consecutive rate rise since
December 2021.
Economists polled by Reuters expect data on Wednesday to
show a fall in consumer price inflation to 9.8% from 10.4%, but
this will still leave it well above the rate in the United
States and most of Europe.
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