Business

Central banks need to be courageous on rates, Sentance says

  • 9 October 2015
  • From the section Business
Bank of England

Central banks in the UK and the US "need to be courageous" and raise interest rates, a former Bank of England policymaker has said.

The banks are focusing too much on short term factors such as falling oil prices, Andrew Sentance said.

The Bank of England held rates at historic lows on Thursday.

Separately, Bank of England governor Mark Carney said a UK rate rise was not necessarily dependent on the timing of an increase in the US.

"The exact timing of the Fed move is not decisive for the timing of the move by the Bank of England," Mr Carney told a seminar at the annual meeting of the International Monetary Fund on Thursday.

Mr Sentance, a former member of the Bank of England's Monetary Policy Committee who now works for PwC, told BBC's Today programme that central banks needed to take a long view, and not focus on short terms factors such as oil prices or market volatility.

"We have independent central banks because they are meant to be courageous, they are meant to try and get ahead of the curve, they are meant to do things that politicians might find difficult and they don't seem to behaving in that way at the moment," he said.

It was "quite dangerous" for central banks to wait until they saw "the whites of the eyes" of inflation, because interest rates could go up "quite sharply" rather than gradually, Mr Sentance said.

The UK should not wait until "all the lights are flashing red in the economy" before raising rates, he said.

The economy had been growing for six years, wages were picking up and unemployment had come down, he added.

The Bank of England's Monetary Policy Committee (MPC) voted 8-1 to keep rates unchanged on Thursday.

Committee member Ian McCafferty voted for a quarter-point rate rise for a third month in a row.

In the US, Federal Reserve minutes showed that the central bank believed that the US economy could handle an interest rate rise, but that it was "prudent to wait" for more information before a rate hike.

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