Andrew Sentance again called for higher rates to battle inflation.
The GBP fell yesterday initially after the release of the Quarterly
Inflation Report, as Mervyn King said the bank was not pre-committed
to a rate increase and that people were getting ahead of themselves in
terms of pricing in rate hikes. Still, tough rhetoric aside, analysts
and traders have a legitimate claim for moving up their expectations
for an interest rate increase from the Bank of England.
|
From Bloomberg: BOE's `Game Changer' Prompts Economists to Alter
Interest-Rate Forecasts
Hayes, a former Bank of England official, changed his prediction for
the first rate increase to May from November, while Hetal Mehta at
Daiwa Capital Markets Europe now sees the first increase in August
rather than November. She described the report as a "game
changer."
The central bank projected in its Inflation Report yesterday that
consumer-price growth will accelerate to about 4.4 percent this year
before easing to its 2 percent target by the middle of 2012. Risks are
"skewed to the upside," it said. The outlook is based on its
benchmark interest rate rising from a confirmation low of 0.5 percent
to 1 percent this year and 2 percent by the end of 2012.
The consensus forecast was for a rate hike in the latter part of 2011,
maybe the 4th quarter - because of the pace of the potholed recovery,
upcoming simplicity measures, and a large slack in capacity, the Bank
of England has maintained that the recent bout of inflation is
temporary and will subside in ahead of schedule part of 2012.
The Inflation Report showed the BoE forecast that inflation would
climb to 4.4%, and that the risk to inflation were more weighed to the
topside. That's a signal that the BoE may be taking into account
tightening earlier. We know that we have two members calling for a
rate hike in the January BoE meeting.
Andrew Sentence went out today and again said higher interest rates
will be needed to cool this period of inflation, and finds the
forecasts in the Inflation Report as too 'optimistic'.
|
From Financial Times: Sentance warns on 'optimistic' Bank forecasts
Andrew Sentance, an external member of the MPC who has been urging
modest rate rises since last summer, said that the standard-term view
- generally presumed to be a two-year horizon - of his fellow MPC
members revealed in the quarterly inflation report this week was
"over optimistic".
"My judgment is that the upside risks to inflation are understated
in the published fan charts," which show the projected path of
inflation, he said in remarks prepared for a speech at the Institute
for Economic Affairs in London. "And monetary policy would most
likely need to be tightened quicker and by more than the markets
currently expect to bring inflation back to target."
As we can see the GBP/USD rebounded from its lows yesterday following
King's comments. We now test an vital pivot at 1.6185, our high for
this week.
The expectations around rates has been see-sawing during the past week
and we'll see which side the market takes following this congestion. A
more hawkish BoE should help support the GBP overall, but the weak
economy could keep the BoE on the sidelines if data comes in of poorer
quality than expected.
Source: ActionForex.Com
No comments:
Post a Comment