Bank of England’s Tenreyro says patience needed to lower inflation

Bank of England's Tenreyro says patience needed to lower inflation
© Reuters. FILE PHOTO: A person walks outside the Bank of England in the City of London financial district in London, Britain, March 23, 2023. REUTERS/Henry Nicholls

(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.

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.

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