Saunders, Bank of England member calls for higher interest rates to curb inflation

31 Aug 2017 11:58 AM

Michael Saunders, an external member of the Bank of England's Monetary Policy Committee, said in a speech this morning that explaining his vote to raise interest rates. He said there was a need for a modest rate hike so that high inflation would now return to its target of 2% sustainably.
Saunders voted in favor of raising interest rates during the June and August meetings after the vote to keep them at previous meetings. In the last two months, inflation remained steady at 2.6 percent, well above the target while unemployment reached a 42-year low.
Saunders added that they do not need to rein in inflation too much to not weaken the economy sharply, but we do not need to accelerate the pace, and that the modest rise in rates will help ensure a sustainable return of inflation to the target over time.
Saunders acknowledged the risk of Brexit and in the event of a difficult exit expected to adapt to asset markets including sterling. He pointed out that monetary policy will not be automatic in case of leaving the union and it may be in one of the two directions according to the effects on supply and demand in addition to the exchange rate.
He also said that the loose policy should not be excessively maintained as an insurance for the Brexit scenario but there should be a willingness to respond as needed.

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