Bank of England (BOE) Governor Andrew Bailey rejected the need for an inflation target higher than 2 percent, warning that changing the goal would “unpick expectations.”
He told a conference in Aix-en-Provence in France that the BOE has flexibility built into its remit that can give the central bank longer to bring price growth down, but that it was “critical that flexibility isn’t confused with not pursuing 2 percent.”
The BOE is grappling with inflation at 8.7 percent, over four times its remit. It raised rates by a surprise half point to 5 percent last month. Markets now expect it to increase them to 6.5 percent to prevent a wage-price spiral.
Photo: Reuters
Some economists have suggested raising the inflation target to 3 percent to take immediate pressure off central banks and avert a rate-induced slump. If the BOE lifts its benchmark to 6.5 percent, most economists believe a recession will be inevitable.
Bailey conceded that the problems were “more severe in the UK” than in Europe, but insisted: “We will bring inflation back to target,” and that “we do have some flexibility about how quickly we bring it back to target.”
Meanwhile, the European Central Bank (ECB) is nearly finished raising interest rates, but will then keep them at a “high plateau” to ensure they fully impact the economy, Governing Council member Francois Villeroy de Galhau said.
“In the euro area, I believe we will soon reach the high point of interest rates,” Villeroy said at the annual Aix-en-Provence conference. “But when I say high point this isn’t a peak, rather it will be a high plateau, on which we will have to remain for a sufficiently long time to fully transmit all the effects of monetary policy.”
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