Thursday, January 10, 2008
The Bank and the ECB
Posted by David Smith at 04:00 PM
Category: Thoughts and responses

The Bank of England's monetary policy committee left Bank rate at 5.5% and, as is customary, issued no statement. The European Central Bank left its key rate at 4% and in the press conference afterwards Jean-Claude Trichet, its president, warned that the ECB was prepared to act pre-emptively to head off inflationary pressures. It's unlikely it will but the upshot was that the ECB gave us a more hawkish "hold" than the Bank, which is still widely expected to cut in February.

Comments

Sometimes in the currency markets, the movements in exchange rates are driven by the fear/forecasts that the interest rate differential may continue to widen indefinitely.

Such moves could have artificially propelled the pound higher versus the usd given the current expectations that the Fed will continue to lower rates. So probably the Bank's dovish tone in making the market always expect a rate cut that may be delivered after a long waiting time is the right one.

Posted by: Brijen Hathi at January 13, 2008 10:56 PM

How much longer can this divergence in central bank policy continue in a global economy? With the Fed possibly cutting rates inter meeting, Trichet and the ECB talking of heading off inflation with pre-emptive rate hikes and Merv and his merry men apparently caught in the middle somewhere...

They can't all be right, can they?

Inflation figures should be interesting this morning, but the Bank had them at their meeting so we should expect them to show continued price pressures, but if they are a shock low reading there will be the big question of why didn't Merv go last meeting?

Posted by: James Trouble at January 15, 2008 05:39 AM