The odds were firmly in favour of a rate hold, and the Bank of England has not disappointed us. More interesting will be the voting pattern, when it is released on May 18.

Annual inflation in the UK is running at 4 per cent, a welcome fall from 4.4 per cent earlier this year. 

Rate normalisation continues in the Philippines, despite the Japanese earthquake. Key rates have been increased by a quarter of one per cent, with the overnight lending (repo) and borrowing (reverse repo) rates standing at 6.5 and 4.5 per cent, respectively. Manila started raising rates only recently: the last rate rise – a quarter point in March – was the first since 2008.

“In deciding to increase policy rates anew, the Monetary Board noted that the latest baseline inflation forecasts continue to suggest that the 3-5 percent inflation target for 2011 remains at risk, mainly as a result of expected pressures from oil prices,” said the Bank. Annual inflation in the year to April edged up to 4.5 per cent, within the government target but at the upper end.

With inflation reaching 17.5 per cent in the year to April, Vietnam’s central bank has again raised interest rates: one lending rate, the reverse repo rate, was raised today by a percentage point to stand at 14 per cent.

Two other rates, the refinancing and discount rates, were both raised by a percentage point on Friday, to stand at 14 and 13 per cent, respectively. Vietnamese authorities have raised several rates multiple times since the start of the year, which have also seen substantial devaluations of the country’s currency, the dong. 

India’s central bank has upped its campaign against inflation, raising rates by half a percentage point, twice previous rate rises. This is the first half point rate rise since 2008 (see chart).

The move comes despite “signs of moderating growth” in the economy, which shows how worried the Bank is about inflation. Strong consumer demand in the country has aggravated the global issue of rising commodity prices, adding to domestic inflationary pressures. That strong demand, in turn, has probably been encouraged by relatively low rates. Indeed, according to the Bank:

…demand has been strong enough to allow significant pass-through of input price increases.  Importantly, this is happening even as there are visible signs of moderating growth, particularly in capital goods production and investment spending, suggesting that cumulative monetary actions are beginning to have an impact on demand [emphasis ours]

 

Rates are held, as expected, and QE2 is expected to continue till June. But all eyes will be on Bernanke for any signals of change at the new press conference (see video). For live blog commentary, see Gavyn Davies‘ real time post or his earlier thoughts.

Interest rates are likely to linger for longer at their current record low of 0.5 per cent, following today’s growth figures. With GDP numbers coming in at expectation, market expectations haven’t shifted that much since yesterday, but over the past two months, the change is dramatic (see chart).

Just two months ago, markets forecast three rate rises this year; now the base rate is not expected to reach 0.75 per cent until November. The data also belie an assumption that a rate rise is far likelier in a month following a GDP announcement (notice the jump in expectations for August, November and February). 

No-one could accuse Andrew Sentance of leaving the MPC without making his position clear. The Bank of England’s chief hawk has just laid bare four key differences between his rate-raising position and that of the rate-holding majority on the MPC.

Disagreements on the UK’s rate-setting committee are fundamental, he says first. In the past, they have been a matter of timing. “I acquired my hawkish mantle much earlier [than last year], when I voted in a minority on a number of occasions to raise interest rates in response to the relatively strong growth and rising inflation we were experiencing before the financial crisis,” he says. “Those minority votes, however, were the expression of modest differences in the timing of interest rate changes.”

This time, the differences are directional. At their root lie contrasting assumptions about the global economy, and disagreement over economic models. Mr Sentance is due to leave the Committee at the end of next month, but the differences he describes are likely to survive him.

In comparison with the rest of the committee, Mr Sentance seems more optimistic on the global recovery, more doubtful about the use of the output gap as a policy tool, and more flexible on sterling appreciating. He is also worried about inflation expectations. 

Owing to holidays and travel arrangements, Money Supply posts will be reduced between Friday April 15 and Tuesday May 3. There will also be no newsletter during this time.

Greek debt affordability is set to worsen considerably, according to the IMF’s Global Financial Stability Report. But in a series of charts comparing 11 countries, the striking thing is how exposed indebted economies are to rising interest rates or falling GDP.

These charts (a full set toward the end of this post) are a great way to depict several moving parts to get to the nub of the issue. The basic idea is: black line inside the green area – good; black line inside redder areas – bad. Dotted line (forecast) – likewise. (The black line, incidentally, is the historical interest rate on government debt.)

The country profiles, relative to each other, are much as you’d expect. Greece, Ireland and Portugal have less favourable interest burdens (in that order). The US, incidentally, is forecast to edge into the yellow. Japan is not.