Bank of England policymaker calls for holding interest rates
Bank of England policymaker Swati Dhingra has called for UK interest rates to be kept on hold, warning that another increase risks 'deepening the pain' for households.
Dhingra, a member of the Bank's monetary policy committee, said a "prudent strategy would hold policy steady" after raising rates for 10 consecutive meetings.
“Overtightening poses a more material risk at this point, through potential negative impacts from increased borrowing costs and reduced supply capacity going forwards,” she said at a Resolution Foundation event.
“It risks unnecessarily denting output at a time when the economy is weak and deepening the pain for households when budgets are already squeezed through energy and housing costs,” she added.
Read more: Bank of England's assessment of UK economy hints at rising interest rates and prices
Dhingra opposed last month’s increase in interest rates from 3.5% to 4 and is seen as a dove in the Bank’s Monetary Policy Committee, alongside Silvana Tenreyro.
The policymaker warned that raising borrowing costs too high risks driving inflation below the Bank’s 2% target in the future.
She said: “Recent research indicates the persistent scarring effects of deep contractions associated with monetary policy tightening and energy market disruptions, indicating the harmful consequences of overtightening.
Read more: Inflation data will dictate Bank of England's next interest rate call, says Andrew Bailey
“Such an approach would increase the downside risks of missing the inflation target in the medium term.
“In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution.”
Still, despite the call for the central bank to slow down its hawkish stance, investors have fully priced in that the Bank of England will raise UK interest rate by a quarter of one percent at its meeting later this month.
Bank of England rate hike on March 23 now fully priced into markets following Fed Chair Powell's comments overnight. 👇
Even a small chance of a 50 bps hike opening up. pic.twitter.com/AB7Vz2oqxG
— Andy Bruce (@BruceReuters) March 8, 2023
This following hints that the US Federal Reserve will raise borrowing costs higher than previously expected.
Read more: Bank of England's Mann: 'Too soon to stop interest rate increases'
Dhingra's comments also come after more hawkish remarks from fellow Monetary Policy Committee member Catherine L Mann before the same think tank last month. Mann said she believed high inflation could persist into 2024, and that the longer it lasts, the higher interest rates must rise to tackle it, meaning the Bank should raise rates now to avoid larger hikes later.
Watch: Andrew Bailey says 'nothing is decided' suggesting interest rates may rise less than thought
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