- Carney sees global rates lower than historical average for prolong period of time
- Forbes sees next move in interest rates to be ‘up’
- The British Pound was little changed versus the US Dollar
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The British Pound was little changed versus the US Dollar (at the time this report was written) after members of the BoE testified in front of the Treasury Committee. Carney’s testimony was in high focus coming into the trading day after the BoE’s quarterly Inflation Report this month, in which the central bank cut its growth and inflation forecasts for this year and next; a move which led to a sharp drop in the British Pound. Deputy Governor for Monetary Policy Ben Broadbent said last week that “it’s ultimately the economy that determines” and not the BoE’s projections, signaling that the market needs to rely on more than these forecasts in estimating the timing of a possible rate hike in the UK. With this in mind, comments from Carney about his confidence in putting price growth back on a path toward the 2 percent target was in high focus.
Highlights from the testimony:
– Growth is being reinforced by macroprudential measures
– BoE could use monetary policy to address macroprudential objectives
– Sees equilibrium global rates lower than historical average for a prolong period of time
– Equilibrium rate in UK to rise as global headwinds dissipates, but in a gradual manner. Doesn’t think the natural UK rate is negative
– Gradual increases means there will still be low interest rate environment, which could cause excessive risk-taking
– BoE largely looks through energy price changes
– Disappointment in productivity growth has caused the BoE to lower forecasts
– Consumer confidence is at its highest level since the financial crisis
– Doesn’t know how much time interest rates will remain low
– Wage growth is in high focus for the BoE
– Domestic demand currently underpinning the UK’s recovery
Just prior to the testimony, Haldane signaled a dovish stance in a report to the treasury committee, in which he wrote that he sees the balance of risks around UK GDP growth and inflation as skewed to the downside, which is the reason why he voted against a hike in interest rates.
Forbes seems to adhere to a more hawkish outlook than Haldane. She said that, in her view, the level of wage growth pressure was currently not appropriate for a rate hike, as wages aren’t rising fast enough to be consistent with the BoE’s inflation target of 2.0%, which is why she opted to keep rates unchanged. With that being said, she sees the UK as being in a solid recovery, and the next move in interest rates will be ‘up’.
With past rhetoric and stances by the members largely similar to previous occasions, the Pound was little changed versus the US Dollar.