The Bank of England’s minutes for its August meeting surprised analysts, with all nine monetary policy committee members voting for bank rate to be kept at 0.5 per cent.
Expectations were for the committee to remain split, with seven in favour of keeping rates on hold and two backing a quarter-point hike (though a minority had forecast a shift owing to the dovish tone of last Wednesday’s inflation report press conference).
Adam Posen again remained the only member calling for more QE, advocating an additional £50bn in asset purchases. However, the minutes’ dovish tone has inevitably stoked expectations others could soon join him.
But another four members still need to change their minds before the Bank can begin a second round of asset purchases. What will that take? Read more
When confidence is shot, policy must get ahead of the curve if it is to count. Do less than markets expect, and there is a decent chance that measures will have the opposite impact to what policymakers were hoping for.
Which is one of two reasons why the Swiss National Bank’s latest move to counter the franc’s appreciation has backfired. This from the FT’s Peter Garnham:
The Swiss franc rose sharply on Wednesday after the Swiss National Bank’s latest attempts to stem strength in its currency disappointed investors.
The Swiss franc climbed 1.4 per cent to SFr1.1318 against the euro, added 1.5 per cent to SFr0.7848 against the dollar and gained 1.7 per cent to SFr1.2886 against the pound.
Evidence mounts of eurozone bank tensions. The European Central Bank reports its dollar facility (operated in conjunction with the US Federal Reserve) has been tapped for the first time since February. One bank borrowed $500m. In line with usual ECB discretion, there are no details on exactly which bank it was.
Part of its crisis-fighting instruments, the ECB left the dollar facility in place even when demand fell to zero – banks were able to get the dollars they wanted more cheaply in commercial markets. For at least one bank, that is obviously no longer the case. Read more