© Reuters. Bank of England Monetary Policy Committee member Swati Dhingra speaks during an event in London, Britain March 8, 2023. REUTERS/Hannah McKay/ File Photo
LONDON (Reuters) -Bank of England (BoE) policymaker Swati Dhingra said she thought there was little risk to the central bank’s credibility if it were to cut interest rates too early and then need to raise them a short time later.
“There might be some kind of financial market psychology, but I still think that if you do the right policy and if you even deviate for the right reasons, people understand. So I’m not that worried about it,” she said in an interview with the Financial Times published on Tuesday.
Dhingra, the sole member of the BoE’s Monetary Policy Committee to vote for a rate cut this month, said she saw a greater risk from economic weakness ahead caused by unnecessarily high interest rates.
BoE Governor Andrew Bailey and the central bank’s chief economist, Huw Pill, have both said they want to see more evidence of a fall in longer-term drivers of inflation, such as wage growth and services prices, before cutting rates.
Dhingra highlighted recent weak retail sales data, lower job vacancies and a fall in overall household consumption since the COVID-19 pandemic as evidence that interest rates did not need to stay at 5.25% to return inflation to its 2% target.
“I’m more concerned that we might be underplaying the downside risks, particularly as we’ve been lucky to have the buffer from the pandemic savings to tide people over. That’s waning now,” she said.
Dhingra said she did not think it was important for wage growth – currently more than 6% a year – to fall back sharply, as British wages had grown at a rate of 4-5% before the 2008 financial crisis.
Many economists estimate that weak productivity growth in more recent years means that wages now cannot grow much faster than 3% a year without pushing inflation above 2%.
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