Commuters pass the Bank of England. Image by Getty
As expected, the Bank of England today kept interest rates on hold at 0.5% and opted not to print more money.
Analysts’ attention has long focussed on the Monetary Policy Committee’s May meeting; it was always more likely to hold off on plumping for more quantitative easing until then. However, its far from certain whether the MPC will opt for further asset purchases on 10 May.
Here are a few of the factors that are likely to sway the MPC’s decision on whether it adds its the £325bn-worth of asset purchases.
Loan growth is losing pace and $10bn short-term capital has left Turkey since the start of its new interest rate policy in December, central bank governor Durmus Yilmaz said Friday. Despite this, the current account deficit – one of the principal targets of the measures – will continue to rise in the first quarter due to base effects. Mr Yilmaz added he did not foresee a change in policy when his governorship ends in April.
The statements add up to declaration of success – but there was a caveat. Oil prices, driven higher by events in Libya, created a “new situation”, Mr Yilmaz admitted. Turkey’s rate-cutting, reserve-requirement-raising policy has so far been possible thanks to falling inflation and fairly high unemployment. (Rate cuts in an inflationary environment would have been far more dangerous.) If oil prices were to remain high, they would create an inflation risk that might constrain Turkey’s monetary plans. For now, as long as Saudi Arabia and its oil reserves stay out of the current turmoil, many believe the oil price shock will be short-lived.