The Bank of England should consider to begin interest rate hikes now if it wants to proceed with the tightening cycle only gradually to reduce the impact on households and businesses, policymaker Ian McCafferty said on Tuesday.
“If we on the MPC are to achieve our ambition of raising rates only gradually, so as to minimize the disruption to households and businesses of a normalization of policy after a long period in which interest rates have been at historic lows, we need to avoid getting ‘behind the curve’ with respect to the neutral rate,” McCafferty said in a speech delivered at the Bloomberg headquarters in London.
“And for me, that provides an additional justification not to leave the start date for lift off too late.”
The policymaker is the only member of the BoE Monetary Policy Committee seeking a rate hike. He has sought a quarter-point rate increase since August.
Meanwhile, other policymakers including Governor Mark Carney have signaled that it is time to think of raising rates, they are apparently not in a hurry amid the persistently low inflation.
The bank rate has been held at a record low 0.50 percent since March 2009. While markets are expecting a hike only by the end of next year or early 2017, some BoE policymakers and analysts suggest a move could happen earlier than that.
“My primary reason for having voted for a rate increase since August is based on my reading of the outlook, and of the balance of risks around inflation by 2017,” McCafferty said.
“But over that period, it is likely that the neutral rate will have risen further, as at least some of the headwinds slowly fade, and it is important that this is taken into account when considering the appropriate stance and path for monetary policy.”
McCafferty’s speech was focused on business finance and the policymaker noted that tight credit conditions for businesses has “diminished markedly” since the financial crisis of 2007. Large businesses are currently enjoying very favorable financing conditions, while the terms are improving for the small and medium enterprises, he said.
The material has been provided by InstaForex Company – www.instaforex.com