00:00What is the MPC looking at, given oil prices have come down, but we're not sure what the way forward
00:05is?
00:06Well, I think that what we have seen are both direct and indirect effects.
00:11And so getting into the May meeting, we could already see the indirect effects of the oil price shock.
00:20But we had to take a view about whether second round effects could materialize.
00:27We couldn't wait for them to be there, but there were indications that they were on their way.
00:34We didn't have inflation expectations figures at that time.
00:39We have had two releases of inflation expectations figures, and they've all crept up.
00:47They are above 4%.
00:48And worryingly, it's that household inflation expectations are at around 6%,
00:55which then says that the call in May was a correct one.
01:00What the call will be in July, we will see when we get there.
01:05But what do you need to see, and what does the MPC need to see, actually, to warrant a hike
01:10in July?
01:11No, I can't tell you what we will be doing in July.
01:15We have got to take these things as data comes through.
01:19But what we have seen, what I'm saying is that the inflation expectations have risen.
01:25They are above our target, and that is the concern.
01:29And that is what we should actually be responding to,
01:32and which says that the step that was taken in May was an appropriate one.
01:36What action gets taken in July, we will see the data.
01:40And depending on outlook, we will calibrate policy accordingly.
01:43But is it a trajectory for further inflation that you're trying to see?
01:48I mean, there's not a single piece of data, right, that will decide your decision now.
01:52Exactly.
01:53You can't look at one piece of data.
01:55You're going to have to look at a multiplicity of data.
01:57And what complicates the situation is that it is actually a very uncertain environment.
02:04One day the war has stopped.
02:08One day it has started again.
02:10And then the markets react to that.
02:13And our duty as policymakers is to try and see through that noise.
02:20But then that means that even in that noise, we have got to be picking what are the trends
02:25that are actually concerning us.
02:27What is in no doubt now had been that with two readings of inflation expectations,
02:33it is telling us that inflation expectations have clipped up.
02:36And it is the duty of the central bank to rein in those expectations and bring them back to target.
02:42Governor, is there any other inflationary pressures coming from something that's not energy prices,
02:47now that the Strait of Hormuz is open?
02:49Well, at the moment, we looked at core, which would enable us to strip out energy and food prices
03:00out of the inflation basket, core is still climbing.
03:05And we expect that it will peak in the first quarter of next year.
03:10Getting into the July meeting, we will make an assessment and see,
03:13do we still expect it to peak in the second quarter of next year,
03:18bearing in mind, in the first quarter of next year,
03:20bearing in mind that the first quarter of next year is outside of the policy horizon,
03:24because the policy horizon is 12 to 18 months.
03:28Governor, and I know you won't tell me whether you're going to hike, of course, in July.
03:31Because I don't know.
03:32You don't know, but is it better to have an insurance hike
03:36to make sure that you mitigate effects of inflation?
03:39Insurance hikes are not particularly useful when you do not have a certainty.
03:48Neither would an insurance card be a useful thing.
03:53So the point here is not to try and be preemptive, but be timious in your age.
03:59But that's, I mean, it's dangerous because then you could be late to the game.
04:03Oh, yes, of course.
04:05If you are late to the game, it's a different ball game.
04:10You are going to have to act more aggressively, which is not what you want to be in.
04:17And I think that besides having a good team that says to us this is how we think things are
04:25going,
04:26I think that the judgment of the NPC in May was actually a very correct one.
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