13 Feb 2015
BoE inflation report consistent with the previous Feb 2016 rate hike view – Nomura
FXStreet (Barcelona) - Philip Rush, Research Analyst at Nomura, comments on the BOE’s inflation report, noting that the MPC outlook was consistent with Nomura’s view for a February 2016 rate hike.
Key Quotes
“The BoE Inflation Report forecasts reflect the steep decline in oil prices, which the MPC judges to be sufficiently transitory for inflation to be above target in three years’ time.”
“However, consistent with recent comments, the targeted horizon recently shortened back toward two years where inflation risks are balanced around target. That backs up dovish market pricing on timing, but perhaps not pace or extent.”
“A surprise halving in the margin of spare capacity seen by the BoE to only 0.5% creates the excess inflation and Governor Carney noted that more may be needed if tail risks do not crystallise. If they do though, the door has been opened to rate cuts, contrary to previous guidance that QE is the easing tool of choice.”
“Asymmetric risk management by the new MPC previously caused us to delay our forecast for first hike until February 2016 with hikes from then occurring quicker than priced (i.e. occur at 25bp/q). We see that as consistent with this Inflation Report.”
Key Quotes
“The BoE Inflation Report forecasts reflect the steep decline in oil prices, which the MPC judges to be sufficiently transitory for inflation to be above target in three years’ time.”
“However, consistent with recent comments, the targeted horizon recently shortened back toward two years where inflation risks are balanced around target. That backs up dovish market pricing on timing, but perhaps not pace or extent.”
“A surprise halving in the margin of spare capacity seen by the BoE to only 0.5% creates the excess inflation and Governor Carney noted that more may be needed if tail risks do not crystallise. If they do though, the door has been opened to rate cuts, contrary to previous guidance that QE is the easing tool of choice.”
“Asymmetric risk management by the new MPC previously caused us to delay our forecast for first hike until February 2016 with hikes from then occurring quicker than priced (i.e. occur at 25bp/q). We see that as consistent with this Inflation Report.”