Oct 1 (Reuters) – Bank of England interest rate-setter Catherine Mann criticised on Thursday the central bank’s response to the Middle East shock, adding that its communications may have contributed to tighter financial conditions in ways that should be of no comfort to officials.
Mann said the rise in market borrowing costs after the outbreak of the Iran war — which some of her colleagues think is helping bear down on inflation — actually reflected expectations of higher inflation and possibly a “monetary policy uncertainty premium”.
She traced that premium to the BoE’s initial response in March to the outbreak of war in Iran, when it held interest rates with a message that she said was perceived by investors as “wait mode”, rather than taking necessary action to control inflation.
“These premia raise nominal yields without necessarily tightening the real financial conditions that matter for demand and inflation. In my view, real financial conditions are insufficiently tight,” Mann said in a speech at the Nomura London Macro Forum.
Mann, an external member of the Monetary Policy Committee, is widely regarded as the BoE’s most hawkish policymaker.
(Reporting by Andy Bruce; editing by David Milliken)
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