Today's Eurobank Rates Decisions: BOE Unchanged; ECB 25 Bps Hike

Tyler Durden's picture

Today, the ECB will probably raise the benchmark rate to 1.5 percent, while the Bank of England will leave rates and its bond purchase program unchanged, according to economists. Per Reuters, "concern about the pace of economic recovery looks set to persuade the Bank of England to keep interest rates at rock-bottom not just this week but for months to come. UK interest rates have stood at 0.5 percent since March 2009, when a deep recession and the threat of deflation prompted central banks around the world to slash rates to record lows. Since then, inflation in Britain has returned as a force to be reckoned with. Consumer prices are rising more than twice as fast as the BoE would like, but it has been reluctant to tighten monetary policy when the government's massive fiscal tightening is already crimping growth. "The Bank can do nothing about inflation over the next six months, and will not try to," said Paul Mortimer-Lee, chief global economist at BNP Paribas. While the European Central Bank looks set to raise rates this month -- its second move since April -- all 70 economists polled by Reuters last week predicted that the BoE's key rate would stay at 0.5 percent." So with inflation at 4.5%, double the target rate, there is speculation the BOE may even commence another round of QE: "Minutes to the meeting observed that "the current weakness of demand growth was likely to persist for longer than previously thought". And several policymakers -- not just arch-dove Adam Posen -- considered that more quantitative easing could be warranted in the future if growth remained weak. Most economists, however, believe printing more money is unlikely short of a disorderly Greek debt default or similar financial crisis. "Many investors remain wary about QE and the monetary policy committee might find it difficult to sell the idea to markets with the current rate of inflation so far above target," said Philip Shaw at Investec." There is no such fear at the ECB yet: after all that particular bank's monetizations occure via separate CDOs and SPVs. Yet if Trichet does not do the expected 0.25% hike, look for the EURUSD to tumble at least 150 pips.



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Ghordius's picture

Dear Trichet, I supported you until now.

You had many difficult decisions to make, and for some of them only history will show if they were correct.

Please rise the rates. Please go back to normality, slowly, all the way.

We are starting to develop cases of trench foot from all this liquidity.

equity_momo's picture

Unless they raise rates to create positive real rates , its just a dog and pony show. The system is tapped out - you will not see positive real rates again until after the systemic collapse.  And who knows what the new system will bring  , we might not even have ursury lending. That would be nice wouldnt it.

The joke is on them though = all these negative real rates and they cant muster real growth. For every % of growth they get , theyll get double it or more in inflation.  Kiss this system good bye.

entendance's picture

Jean-Claude Junker, the man who says "When it becomes serious, you have to lie", apparently has had a sudden splash of honesty, stating Greek sovereignty to be massively limited... 2011: A GLOBAL REVOLUTION IS INEVITABLE