Analysts at Rabobank explained, that as widely expected, the Bank of England MPC raised the Bank rate to 0.75% from 0.50%.
Key Quotes:
“This could be seen as the first ‘real’ rate rise since the GFC. The vote was unanimous, which was a surprise. The forward guidance was left unchanged,”
“Any future increases in the Bank Rate are likely to be at a gradual pace and to a limited extent.”
“The monetary policy summary and the minutes were initially being read as relatively hawkish, but this wasn’t confirmed in the subsequent news conference.”
“There was a lot to do about the equilibrium interest rate.”
“The Bank’s calculations suggest that the final destination of the Bank rate is somewhere between 2% and 3%, but also highlighted that the current equilibrium rate (r*) is still lower than that.”
“According to Carney, the Bank’s policy therefore needs to “walk – not run – to stand still”.”
“The big elephant in the room is, of course, Brexit, but the MPC safely stays away from explicit views. However, Carney did say that Brexit negotiations didn’t “handicap” policy making. We don’t subscribe to this and expect rates to remain on hold for now.”
“The MPC has taken a leap of faith to protect its forward guidance and maintain its credibility, but Brexit is a big, big question mark that hovers over the economy.”
“We don’t expect another hike until it becomes clear what kind of Brexit the economy has to endure.”
“If this indeed will be a relatively smooth Brexit, the meeting in May 2019 looks as the first reasonable opportunity for another hike.”
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