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BoE’s Greene says case for rate rise grows the longer Iran conflict lasts
Bank of England Policy Response to Iran Conflict
By David Milliken
Growing Case for Interest Rate Hike
LONDON, June 2 (Reuters) – Bank of England policymaker Megan Greene said on Tuesday that she saw a growing case for raising interest rates as the Iran war drags on and boosts the chance of wide-ranging rises in prices across the economy.
Recent Voting and Policy Statements
Greene was part of the 8-1 majority on the BoE’s Monetary Policy Committee who voted to keep interest rates unchanged at 3.75% in April, but said at the time that “an increase in Bank Rate may be necessary in upcoming meetings”.
Speech at University of Derby Business School
In a speech she will give to the University of Derby business school later on Tuesday, Greene said acting sooner rather than later may be needed to reassure the public that the BoE is committed to getting inflation back to its 2% target.
“I think the case for hiking rates grows as the conflict wears on and believe a tightening in monetary policy over the next few weeks or months may be necessary,” she said in a text released by the BoE.
Speed and Risks of BoE Response
The speed of response by the BoE to inflation threats was as important as the size, and waiting for conclusive evidence of the inflation impact of the Iran war would be leaving things too late, she said.
“In my view, the risk of acting, even if inflation proves to be less persistent, is less severe than the risk of failing to act,” she added.
Market Reaction and Internal BoE Differences
Market Movements Following Greene’s Remarks
British government bond futures fell to a day’s low shortly after the BoE released Greene’s remarks, although gilt yields’ move on the day was broadly in line with European peers.
Differing Views Within the BoE
Greene’s stance differs from that of Governor Andrew Bailey – often seen by economists as a bellwether on the MPC – who has said a tightening in market interest rates since the start of the Iran war gave the BoE time to assess the situation.
Greene’s Warning on Market Reliance
“We cannot rely on the tightening of the (market interest rate) curve to do our work for us – absent a hike in Bank Rate soon, the curve will likely fall,” she said.
(Reporting by David Milliken; editing by William James)