Comments: A certain rate rise?

My interpretation of the Governer's comments after watching the webcast is that he and the MPC don't have a clue what's going to happen! I lost count of the number of times I heard him mention "significant uncertainties". What they do seem to think, however, is that if IR are not 5.5% within the next 2-3 months that CPI will still overshoot it's 2.0% target, whereas if IRs DO go up to 5.5% it will not. So I think that's a fair indication that they are likely to raise rates, do you not think? If the expected falls in consumer gas and oil prices do not materialise to the extent that the MPC are hoping, I wouldn't like to bet against a couple more rate hikes before the end of the year.

Posted by Fred at February 15, 2007 04:43 PM

It may be the case that rates do indeed go up to 5.5%, and that that was the intended signal. But it is not correct to say that this follows automatically from the forecast. If you look at Chart 2 in the inflation report, it suggests that a rise to 5.5% (the Bank's interpretation of market interest rates) will give below-target inflation for most of the next three years.

Posted by David Smith at February 15, 2007 05:01 PM

That's not really what Mervyn said at the press conference though, is it? He said that "if rates were to follow market expectations (i.e. up to 5.5% in Q2), inflation would fall back to target" and that "if rates were not to follow market expectations (staying at 5.25%), inflation would remain above target". So I think that says pretty clearly that another hike is coming.

Posted by Fred at February 16, 2007 04:09 PM

No he didn't

Posted by David Smith at February 16, 2007 04:31 PM