3 Dec 2014
Markets expect BoE on hold until late 2015 – BAML
FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch do not expect rate rises until late 2015 fro the BoE and note the decline in oil prices ahead of tomorrow’s BoE.
Key Quotes:
"After a more dovish-than-expected Inflation Report and the market now not pricing in a first rate rise until late next year, the Bank of England is unanimously expected to leave interest rates and QE on hold at 0.5% and £375bn, respectively, this week. We do not expect the BoE to issue a statement either - in line with the usual protocol when monetary policy is left on hold."
"One of the most notable developments since the last BoE meeting has been the significant decline in the oil price outlook. That poses opposing forces for them. In the near-term, it materially increases the likelihood that after the December CPI data (published mid-January), Governor Mark Carney will have to write an open letter to the Chancellor explaining why inflation has fallen more than 1ppt below the BoE's 2% target. While ex-Governor Mervyn King wrote 13 such letters on the upside between 2008 and 2012 (as CPI inflation climbed above 3%), he never had to write one on the downside."
"In the event though, the open letters did not prove to be seismic events: the market already knew the BoE's views on the inflation outlook from Inflation Reports, the minutes from their monthly meetings, and BoE members' speeches. But still, the weakness of the near-term CPI inflation outlook - alongside material risks of the General Election in May resulting in a hung parliament and some difficult coalition-building arithmetic - provides an easier backdrop for the BoE to leave interest rates on hold, in our view."
Key Quotes:
"After a more dovish-than-expected Inflation Report and the market now not pricing in a first rate rise until late next year, the Bank of England is unanimously expected to leave interest rates and QE on hold at 0.5% and £375bn, respectively, this week. We do not expect the BoE to issue a statement either - in line with the usual protocol when monetary policy is left on hold."
"One of the most notable developments since the last BoE meeting has been the significant decline in the oil price outlook. That poses opposing forces for them. In the near-term, it materially increases the likelihood that after the December CPI data (published mid-January), Governor Mark Carney will have to write an open letter to the Chancellor explaining why inflation has fallen more than 1ppt below the BoE's 2% target. While ex-Governor Mervyn King wrote 13 such letters on the upside between 2008 and 2012 (as CPI inflation climbed above 3%), he never had to write one on the downside."
"In the event though, the open letters did not prove to be seismic events: the market already knew the BoE's views on the inflation outlook from Inflation Reports, the minutes from their monthly meetings, and BoE members' speeches. But still, the weakness of the near-term CPI inflation outlook - alongside material risks of the General Election in May resulting in a hung parliament and some difficult coalition-building arithmetic - provides an easier backdrop for the BoE to leave interest rates on hold, in our view."