New BoE policymaker Dhingra favours 'very gradual' moves on rates

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Trading could come under Bank of England climate test scrutiny Copyright Thomson Reuters 2022
By Reuters
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By David Milliken

LONDON -The Bank of England should move very gradually to tighten monetary policy because the economy now appears to be slowing faster than previously thought, incoming BoE policymaker Swati Dhingra said on Wednesday.

Britain’s central bank has raised interest rates five times since December, mostly in quarter-point increments, but a minority of policymakers have called for bigger moves of half a percentage point to tackle soaring inflation.

One of those policymakers is Michael Saunders, who Dhingra will succeed after August’s Monetary Policy Committee meeting.

Dhingra told a parliamentary committee scrutinising her appointment that she might have leaned towards a half-point rise at this month’s meeting, but believed now that that would have been a mistake, due to a sharp fall in consumer sentiment.

“In hindsight now I think that maybe there is some room for a very gradual approach here,” she said – adding that should apply too to reversing the BoE’s nearly 900 billion pounds ($1.09 trillion) of asset purchases.

“Newer data is starting to show that possibly a slowdown has become much more imminent than we thought before,” she said.

Britain’s main measure of consumer sentiment, from GfK, sank to its lowest level since at least 1974 in June as households feared the impact of surging inflation.

BoE Governor Andrew Bailey told a European Central Bank panel on Wednesday that it was “very clear” the economy was at a turning point and beginning to slow, and that forceful interest rate moves might prove unnecessary.

The BoE forecasts consumer price inflation will exceed 11% in October, when a 40% rise in regulated household energy bills takes effect, and financial markets expect rates to reach at least 2.75% by December, up from 1.25% now.

Dhingra is an associate professor at the London School of Economics, specialising in trade policy and international economics, and has published research on how much Brexit is likely to hurt living standards in Britain.

In the nearer term, Dhingra said she would be keeping a close eye on the extent to which businesses were passing on the rising cost of imported goods and raw materials.

However, figures showing record levels of job vacancies – often viewed as a sign of an overheating labour market – should not necessarily be taken at face value, she added.

Dhingra, the first Asian woman to join the MPC, said her childhood in India at a time of chronic high inflation had strengthened her belief that it must be kept in check.

“Joining the MPC at this point is not for the faint-hearted, and I’m not that. And clearly I understand how much people might be upset right now with the cost-of-living crisis going on.”

($1 = 0.8232 pounds)

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