Eli5, why are interest rates raised slowly every month rather than in one bigger chunk when inflation is so high?

Question

Every month the BofE raises the interest rate bit by bit, knowing inflation is so high and knowing they had to raise the rates quite high, why do it so slowly?

In: 35

Answer 1

If they raised rates very quickly, they run the risk of destabilizing the banks. The Federal Reserve’s job #1 is to keep banks in business. What’s inexplicable is why banks with large uninsured deposits and large long-term loan portfolios didn’t hedge against the very predictable interest rate rises that motivated depositors to move their funds and devalued their loan portfolio on paper. (I’m looking at you, SVB and FirstRepublic.) The banks that failed to do so had a strong paper position before the interest rate rises and could have sold them off or hedged their position at the beginning of the Fed moves on interest rates.