Remember that at the January meeting two members of the Monetary Policy Committee voted for an interest rate rise of 0.25 percentage points, six voted for no change and one voted for additional quantitative easing. In addition, “some members” of the no change group indicated in the minutes that the choice between doing nothing and raising rates was “finely balanced” and would wait until the quarterly forecast round and February meeting to make a positive decision.
In Bank of England minutes-speak, it is now officially recognised that “some members” means more than one. Until about 2005, the Bank strenuously argued that some could logically mean one, which it can, but the Bank subsequently saw sense and realised that the added mystery and pedantry served no purpose other than to irritate.
The possibility arises therefore of a 4-4-1 vote. Four wanting monetary tightening, four for no change and one wanting an easier monetary policy stance. Read more
During the eurozone debt crisis, European Central Bank policymakers (unlike politicians) have generally resisted the temptation to blame financial markets for its woes. Jean-Claude Trichet, its president, has just made an exception.
Giving evidence to the European Parliament, he warned some investors had an interest in talking up the prospect of “haircuts” – or imposed losses – on Greek and Irish debt. “Investors that are ‘long’ always lose money when you practice these ‘haircuts’. Those investors who are ‘short’ make money,” he said. Read more
This post could be titled: “Why inflation might stay higher for longer”. All the research comes from Michael Saunders of Citi, who has the distinction of having been closer than anyone else to understanding the pass-through from weaker sterling into import prices.
If the Bank of England’s big mistake – apart from seeming to change its objective and its analysis – is failing to understand the pass-through of import prices to consumer prices, little could be of more importance for the inflation-generating process than understanding import prices. As the first chart shows, there might be significantly more UK inflation to come from import prices.
The chart merits more than a quick glance. All lines are rebased to January 1996 just before the big sterling appreciation, so the chart shows changes not levels. The blue line shows UK consumer goods prices in sterling – those faced by UK households. These prices fell gradually over the following decade, while eurozone goods prices (in euros) rose gradually. Read more
Romania is set to obtain a new €5bn precautionary loan deal from the International Monetary Fund and European Union, its president has confirmed. Traian Basescu said in speech on Sunday that funds would serve as a backstop and would only be drawn if strictly necessary. The safety net will remain in place for two years.
The package is likely to reassure investors given the still lingering risk of a spillover from Europe’s sovereign debt crisis and the impetus the IMF may give to further structural reforms in Romania. Analysts also said a precautionary deal would help lower the government’s borrowing costs. Read more
Rates must rise in Norway, and “not too slow[ly]” either. This from the head of Norway’s Financial Supervisory Authority, Bjoern Skogstad Aamo. Reuters news wire quotes his concern on bubbles, housing in particular. Household debt levels, as well as house prices, are “historically high”.
“It is important to reduce the risk of new crises through a gradual, and not too slow, normalisation of interest rates, through limits on bank housing loans, strict standards on banks’ equity and continued active supervision of property markets,” he said. Read more
Higher interest rates might be on their way in India if oil prices remain high, according to the central bank. Events in Egypt could drive up oil prices and impact monetary policy, the deputy governor has said.
“A whole set of events unfolded in the Middle East which are starting to have an impact on oil prices and that is something we didn’t anticipate at the time of making the policy announcement on January 25,” Subir Gokarn said on Sunday. “It is going to have an impact on our thinking, on our actions going forward.” Rates were raised 25bp on January 25. Mr Gokarn’s comments suggest that with hindsight the Bank might have raised them further. Read more