Bank of England gives up on raising interest rates immediately
The Bank of England has given up on raising interest rates immediately, keeping its benchmark interest rate at a historic low of 0.1%, despite its highest inflation forecast in a decade.
predict Inflation rate will reach 5% Next spring, the Bank of England’s Monetary Policy Committee said on Thursday that interest rates may need to be raised “in the coming months.”
But compared with the governor of the Bank of England, the urgency to deal with inflation has decreased Comment by Andrew Bailey Last month, the Monetary Policy Committee “will have to take action” to curb price increases.
The decision to keep interest rates constant has puzzled the financial markets and they believe the Bank of England Ready to tighten monetary policy, to 0.25%, the first time since 2018.
After the announcement, the pound fell 1.5% to US$1.352, the lowest level against the US dollar in five weeks.Short-term performance by the British government The biggest one-day gathering Since March last year, the yield on the two-year Treasury bond has fallen by 0.21 percentage points to 0.48%.
The Monetary Policy Committee tried to quell market unease with the signal that interest rates still need to be raised to curb inflation.
Ben Broadbent, the Bank of England’s deputy governor for monetary policy, said that interest rates are “unlikely to stay the same” at 0.1% because this means that inflation will not return to the central bank’s 2% target until 2025 at the earliest.
But Bailey would not say when to take action.When asked about the definition of the term “coming months”, the governor said “how many [MPC] Meetings in the coming months”.
Bailey also stated that the Bank of England will not raise interest rates to 1% before the end of 2022, as the market expects, because the central bank’s forecast shows that if they tighten monetary policy so much, then medium-term inflation will be lower than it. 2% goal. .
Barclays interest rate strategist Moyeen Islam said: “This is an exciting day for the market.” “The governor made it clear at the press conference that he had not made any promises before the outbreak. [November] Meetings, but investors certainly don’t think so. This issue has now become a certain degree of vigilance regarding Bank of England communications. “
MPC’s decision is not unanimous. Two of the nine members of the Monetary Policy Committee voted for an immediate interest rate hike to 0.25%, and three hope that the central bank will now end its asset purchase quantitative easing program.
Bailey said his interest rate decision was a “very close decision.”
But he supports the majority of the Monetary Policy Committee, who believe that slowing economic growth and expected decline in real household income will help substantially reduce inflation in the second half of next year.
The minutes of the Monetary Policy Committee meeting stated that most people believe that there is no need to raise interest rates immediately because “it is valuable to wait for more information on the effect of ending the government’s labor market holiday program” and reflect the “economic slowdown.” In the case of household income under pressure, this demand may continue to exist.
Most people believe that higher inflation “is still likely to be temporary” and “causes a one-time increase in consumer prices, rather than a sustained higher inflation rate.” Monetary Policy Committee members are worried about the cost of a small increase in interest rates.
MPC expects that the supply chain disruption will continue until the end of next year, and energy prices will rise further, pushing the inflation rate in April to 5% and then falling back.
But it expects that inflation will not fall below 3% until the spring of 2023, which will be much higher than the central bank’s target for a long time.