Bank Of England's Greene Worries About High-Inflation Plateau

• Britain's recent increase in inflation could prove to be a longer-lasting plateau rather than a short-term hump, and the Bank of England should be careful about reducing interest rates, BoE monetary policymaker Megan Greene highlighted.
• British consumer price inflation was 3.4% in May - well above its 2% target - and the BoE last week forecast it would rise to 3.7% by September and remain around 3.5% for the rest of the year.
• Greene, who voted to keep borrowing costs on hold at the most recent meeting of the BoE's Monetary Policy Committee, said conflicting signals from economic data meant she was in no hurry to resume voting for rate cuts.
• "Noisy data means that it will take longer for me to take comfort from recent disinflationary trends," she said. "Given the period of elevated inflation through which we have just come, I think price stability is the key priority." Greene said the BoE's message that it would take a "careful and gradual approach" to cutting rates was still warranted.
• The BoE wants banks to make greater use of its weekly repos for seven-day and six-month funds, and Greene highlighted the possibility for commercial banks to profit from differences between the BoE's and other central banks' reserve systems. "Financial arbitrage opportunities present incentives for banks to participate in our facilities, enhancing rather than undermining our ability to maintain rate control. This is a feature, not a bug," she noted.
• The scale of these opportunities was "fairly limited", she added. Asked what this meant in cash terms - and whether it represented an extra cost for the BoE - Greene said she could not give details and that her focus as an MPC member was on the effective transmission of BoE rate changes to financial markets.

(Source: Reuters)