Speaking at BNP Paribas’ Global Markets Conference – The Next Normal, Catherine Mann, Member of the Monetary Policy Committee, Bank of England, revealed that inflation is likely to exceed the Bank of England’s forecasts in the medium term.
She believes it is crucial to keep interest rates steady for longer to combat inflation and she will only consider making bigger moves when she sees evidence of a significant moderation in inflation persistence.
Mann noted that services price inflation remains steady, but there are indications that hospitality businesses are struggling to increase prices and pay higher wages. Energy prices are likely to increase, contributing to the overall risk of higher inflation, but there could be some downward pressure on inflation from export prices, particularly from China. Overall, there are more factors contributing to higher inflation than lower inflation and it will remain more volatile in the medium term.
Panel discussion
Mann joined a distinguished all-women panel including Esther George, President and Chief Executive of the Federal Reserve Bank of Kansas City (2022-2023) and Fernanda Guardado, Deputy Governor of Bank of Brazil (2021-2023) and Head of Latam Economics Markets 360, BNP Paribas.
Watch a video replay of the discussion here.
The panel was moderated by Luigi Speranza, Global Head of Markets 360 and Chief Economist at BNP Paribas Global Markets. They engaged in a thought-provoking debate, titled ‘Monetary Policy – Mission Accomplished?’, answering key questions including:
- Can central banks deliver a ‘soft landing’?
- How will the numerous structural changes taking place in the economy affect neutral interest rates?
- What lessons will central banks take from the past few years when they revisit their policy framework?
Luigi Speranza commented: “It was an honour to moderate such a brilliant panel. The insightful exchange of views considered the environment in which central banks are operating, including whether inflation has indeed been vanquished and the ‘next normal’ of elevated uncertainty and volatility. On the one hand, forward guidance might no longer be an appropriate tool for central banks; on the other, absence of forward guidance and focus on ‘data dependence’ might risk introducing volatility.
“Whether you are more persuaded by a ‘gradualist’ or ‘activist’ approach to setting policy, the discussion included a helpful, clear framework for analysis.”
On the one hand, forward guidance might no longer be an appropriate tool for central banks; on the other, absence of forward guidance on ‘data dependence’ might risk introducing volatility.
Luigi Speranza, Global Head of Markets 360 and Chief Economist, BNP Paribas
