Bank of England officials are calling for action: gradual interest rate cuts are "no longer effective"! It is time to take strong measures to support the economy.

Catherine Mann, a policy maker at the Bank of England, stated that gradual interest rate adjustments are no longer able to send clear signals to the volatile financial markets, and that larger adjustments are now needed to "cut through" market noise in order to promote economic development. Mann explained her decision to support a significant 50 basis point rate cut last month in a speech she was preparing to deliver at the Reserve Bank of New Zealand on Friday morning. She also emphasized the need for policy to remain restrictive in order to address ongoing inflation. In early February, when the Monetary Policy Committee unexpectedly lowered the borrowing cost by 25 basis points to 4.5%, Mann's vote caught the market by surprise, leading her to switch from a hawkish stance to a dovish one. While this move sparked intense market reactions, the trend reversed in the following days. Mann stated that her bold action was necessary because signals from policymakers and economic data were being drowned out by the "spillover effects" of the financial markets, particularly those from the United States. Evidence she cited included significant fluctuations in borrowing costs while the Bank of England maintained interest rates unchanged, and short-term rate hikes following the Bank of England's policy easing. She said, "Monetary policy must navigate through turbulent financial markets, shock-hit economies, and elusive expectations. A more substantial rate cut, like the one I voted for at the recent meeting, can cut through this turbulence with the aim of conveying policy stances more effectively and influencing the economy." However, Mann insisted that her vote in favor of a 50 basis point rate cut last month did not mean that she believed the threat of inflation had subsided. She projected inflation to bounce back from 3% to 3.7% in the coming months, citing recent data on wage and price developments and expectations from a year ago that were still not in line with targets. "I have stressed the need to maintain restrictive bank rates for longer to dampen this upward trend I still believe this," she stated, emphasizing the importance of keeping rates restrictive. If interest rates were to be reduced by 50 basis points to 4.25% as Mann advocated, the rates would still remain restrictive. "Maintaining a restrictive monetary policy for a longer period allows me to assess the sustainability of inflation," she explained. She also noted that taking bold decisions to steer markets in the right direction and keeping high rates until the threat of inflation clearly subsides is a proactive monetary policy strategy. Gradualism is effective "when capital flows are small and markets are more stable" as it aids in the transmission of monetary policy. However, with volatility stemming from financial markets today, new approaches are needed. "The premise of gradualist monetary policy is no longer effective," Mann pointed out. During the question and answer session following her speech, Mann was asked whether optimism was the right approach in such uncertain times. "In a dark room, small steps forward," Mann responded. "Part of the reason the room is dark, or the fog has not cleared, is because monetary policy has not taken a decisive stance." In defending her decision to push for a bold rate cut last month, she said, "I have no problem changing my vote when the economic environment changes. If I make a wrong judgment, I will admit it. I have no problem admitting it."