“At this stage, we need to be patient,” Tenreyro said on a panel at the International Monetary Fund in Washington on Friday. “There are long lags in the transmission of monetary policy. We are still to see most of the tightening pass through.”
Tenreyro is one of two doves on the BOE’s nine-member rate setting committee and has voted to keep rates unchanged for several months. The BOE has raised rates 11 times running to 4.25%, and markets expect at least one more hike as inflation is still at 10.4%. Tenreyro has two meetings remaining before her term expires.
She told the IMF that policy makers need to use the flexibility built into their remits to deviate from the 2% target “especially when facing trade or production shocks” such as the recent energy price crisis.
“In these situations, the monetary policy committee needs to balance the speed with which it returns inflation to target against output stability and other considerations,” she said.
Flexibility may need to be used more often in the future as there is a possibility economies will be buffeted by “more frequent supply side shocks,” she added.
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