Sushil Wadhwani, CIO of PGIM Wadhwani has called for the Bank of England (BoE) to be reflective and cautious amidst the ongoing economic challenges facing the market. Wadhwani’s comments come as the BoE took pre-emptive action by raising interest rates beyond market expectations to proactively address inflationary pressures.
Sushil Wadhwani comments: “It is the first time in this hiking cycle that the Bank of England has opted for a more hawkish direction, and they’ve seen the benefit in terms of market expectations.”
“This has been a particularly difficult period to set policy, given the changing economic relationships caused by the pandemic and geopolitical events. Central banks in the US and the Eurozone have faced similar challenges.”
Commenting on the potential consequences of the rate hike: The coming period will provide evidence to help us distinguish between the ’embedded’ view and the ‘delay’ hypothesis. If higher inflation becomes embedded, rates may need to reach 6% to deal with that problem.”
“The higher rates need to go, the greater the probability of a recession. However, if inflation begins to recede in the coming months, the balance of evidence may shift towards the ‘delay’ hypothesis, potentially reducing the need for rates to reach 6%.”
As the markets digest this unexpected move by the Bank of England, its implications for inflation, economic growth, and investor sentiment will become clearer. With the ongoing uncertainties, analysts and market participants will closely monitor future data releases and BoE statements for insights into the trajectory of monetary policy.
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