The MPC – now even more firmly under the control of doves following the recent surprise resignation of Viral Acharya – is likely to use the current low rate of headline inflation as justification for a fourth consecutive rate cut at the conclusion of its policy meeting on Wednesday 7th August. But with a growing perception that the central bank’s credibility is being eroded, further policy loosening raises the risk that inflation rebounds strongly and ultimately requires interest rates to be higher in the future.
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