Woolnough, who runs the £19.6bn M&G Optimal Income Fund which is sold across continental Europe, told International Adviser that if this policy stance is maintained “eventually inflation will come back”.
“I’d argue that even if they keep rates low you won’t get inflation to the extent that you have historically. So I’m a firm believer that the new normal interest rate is for short term interest rates being 0-4%, not 3-6%.
“I think the central banks are being too dovish – my view is that they are keeping rates lower for longer than they should do.”
He said there is a risk “you get anchored to the history of where interest rates have been” and that fortunately he has been through a number of cycles when in one case rates went through 10% against expectations.
His view on deflation is different to others, he added: “I think falling inflation and low inflation is good so if you get a scenario where inflation is low, my analytical view is that central banks should let it be low and if you have deflation in the economy then so be it because you can have deflation with reasonable growth.”
See also: Woolnough's double-edged sword hanging over today's bond markets
