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Free AccessMNI POLICY: BOE MPC in 'Hawkish Hike', Rate At 9-1/2 Yr High
--BOE MPC Votes 9-0 For 25 Bps Hike In Bank Rate To 0.75%
By David Robinson, Jai Lakhani and Jamie Satchi
LONDON (MNI) - The following are the key points from the August MPC
monetary policy decision and inflation report, published Thursday by the Bank of
England (BOE):
- The BOE Monetary Policy Committee (MPC) members all voted for a 25bps
rate hike in August, confounding market expectations for at least one dissenting
vote in favour of no change. The decision and accompanying commentary amounts to
a hawkish hike.
- All MPC members voted together for a hike for the first time since May
2007, resulting in the Bank Rate rising to 0.75%. This is the highest Bank Rate
since February 2009 when the Bank Rate was 1.0%. All the MPC agreed that
"ongoing tightening of monetary policy ... would be appropriate" if the economy
evolved as projected.
-August's Inflation Report included for the first time an estimate of the
equilibrium real interest rate (R*). The range for R* given by the BOE was
0%-1.0%, with a modal estimate of 0.25%. This range had fallen by more than 2
percentage points since 1990 when it was estimated to have been between
2.25%-3.25%, with a modal estimate of 2.5%.
-The bottom of the MPC R* range, corresponding to nominal Bank Rate of
2-3%, is above market implied expectations for Bank Rate, of 1.25% five years
ahead. While r*, the short term equilibrium rate fluctuates, at face value this
still suggests Bank Rate should rise further than markets are assuming.
- In contrast to May's inflation report, August's forecast meant that
inflation is anticipated to remain above the 2.0% target throughout the forecast
period. The latest 2.0% fall in sterling between May and August has driven this
upward revision, and the decline in rate expectations also gave inflation an
upwards nudge.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: MABDS$,MAUDR$,MAUDS$,MMUFE$,M$B$$$,M$E$$$,M$U$$$,M$$BE$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.