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VIEW CHANGE: RBC: MPC are "a hostage to the data"; look for 2x25bp hikes

BOE
  • “On the basis of the meeting minutes we retain our call for two further 25bps rate increases at each of the next two meetings and thus revise our estimate of terminal rate to 5.5% from 5.25%.”
  • The 50bp hike “was the MPC attempting to signal to markets, as well as the wider public, that they understood what the issue is and that they are willing to take action as necessary to deal with it.”
  • “It was the line that the data misses “suggested a 0.5 percentage point increase in interest rates was required at this particular meeting” that stood out. The minutes therefore suggested that the MPC hadn’t entirely dropped its cautiousness. We think, therefore, that the MPC will return to, or at least hope to return to, 25bps increments while continuing to tighten policy over the next two meetings.”
  • “The MPC are now, in effect a hostage to the data. The indication from today is that their reaction function is dependent on the scale of data surprises. There is still no discussion over how much additional tightening they think is required nor where they think terminal is. Should the data continue to surprise versus expectations then it is likely to be the case that the MPC won’t be able to resist following today’s 50bps move with a similar sized increase in August.”
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