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None what is the front line of the U.S. Increasing interest rates to combat a temporary increase in inflation risk appears to be self-destructive, according to the Bank of England policy maker Silvana Tenreyro
The comments made in an interview with BusinessLive Wales are the strongest push back yet from a central bank official in the face of mounting market bets on rate hikes as soon as this year.
Tenreyro, widely seen as one of the most dovish voices on the three-member Monetary Policy Committee, expressed concerns over growth. She said the economy was weaker than forecast by the bank and remains the equivalent of a complete recession below its pre-Covid levels.
Her comments, however, are likely to do little to change predictions among investors that the central bank is close to lifting borrowing costs to curb inflation with more hawkish policy makers seen dominating the MPC.
Traders are betting the BOE will raise its key rate to 1% by 2022, the highest level in more than a decade, from the current level of 0.1%. Governor Michael Saunders and MPC member Andrew Bailey appeared to reinforce signals for an imminent hike in interviews last week.
Tenreyro said that part of the rapid acceleration in prices this year has been due to energy gains, which tend to have a one-time impact on inflation. Another reason has been supply chain bottlenecks, which can resolve over time, she said, which means that raising rates may not be needed to bring those gains under control.
Typically, for long-lived effects on inflation, such as the big increases in the prices of semiconductors or energy prices, it would be self-defeating to respond to their direct effects, Tenreyro said. By the time interest rates had a major effect on inflation the effects of energy prices would already be dropping out of the inflation calculation. None Jane Fraser Has a plan to Reproduce Citigroup and yet Tormenting Rivals Bounce?
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