MPC Preview: Finding the Termination Level of Policy Interest Rates
2023-05-12
■Although the Bank of England has reduced its interest rate hike, it continues to tighten its policies under tight labor demand and inflationary pressure.
■The termination level of the policy interest rate is expected to be 4.75% and will shift towards interest rate cuts in the first quarter of 2024 or later.
Yesterday, the Bank of England (BOE) will hold a meeting of the Monetary Policy Committee (MPC). Since December 2021, policy interest rates have been raised 11 times in a row, but the rate hike peaked at 75 basis points in November 2022 and narrowed to 50 basis points in December of the same year and February of this year, compared to 25 basis points in March, becoming the smallest increase since June 2022. At the MPC meeting on March 24th, with a vote of 7 to 2 (of which 2 voted to maintain interest rates unchanged), it was decided to raise interest rates, and Mann, who had long supported a significant rate hike, also voted in favour of a 25-basis point rate hike.
In March, the consumer price index (CPI) rose by 10.1% year-on-year, maintaining a high double-digit level. Since reaching a historic high of 11.1% in October 2022, despite a slowdown in the pace of growth, the core CPI growth rate, excluding energy and food, has remained at 6.2%, exceeding the central bank's target of 2%. Yesterday's Monetary Policy Committee (MPC) meeting decided to raise interest rates by 25 basis points for the second consecutive time and is expected to raise the policy rate to 4.50%, reaching the highest level since October 2008.
However, salary growth has still failed to catch up with price increases, with a substantial decrease of 4.1%, marking the largest decline since 2001. The Bank of England (BOE) predicts that although the Consumer Price Index (CPI) will decline to below 4% by the end of the year unless the economy deteriorates significantly, BOE will hold a negative attitude towards stopping interest rate hikes before confirming a decrease in inflation rates. At present, the market will closely monitor the preliminary real GDP data for the first quarter released on the 12th, the employment statistics for the first quarter on the 16th, and the April CPI data on the 24th to determine the direction of fiscal policy. It is expected that the Bank of England will once again decide to raise interest rates by 25 basis points at its MPC meeting on June 22, raising the policy interest rate to the final target point (terminal interest rate) of 4.75%. It is expected that interest rates will begin to decline after the first quarter of 2024.
■The termination level of the policy interest rate is expected to be 4.75% and will shift towards interest rate cuts in the first quarter of 2024 or later.
Yesterday, the Bank of England (BOE) will hold a meeting of the Monetary Policy Committee (MPC). Since December 2021, policy interest rates have been raised 11 times in a row, but the rate hike peaked at 75 basis points in November 2022 and narrowed to 50 basis points in December of the same year and February of this year, compared to 25 basis points in March, becoming the smallest increase since June 2022. At the MPC meeting on March 24th, with a vote of 7 to 2 (of which 2 voted to maintain interest rates unchanged), it was decided to raise interest rates, and Mann, who had long supported a significant rate hike, also voted in favour of a 25-basis point rate hike.
In March, the consumer price index (CPI) rose by 10.1% year-on-year, maintaining a high double-digit level. Since reaching a historic high of 11.1% in October 2022, despite a slowdown in the pace of growth, the core CPI growth rate, excluding energy and food, has remained at 6.2%, exceeding the central bank's target of 2%. Yesterday's Monetary Policy Committee (MPC) meeting decided to raise interest rates by 25 basis points for the second consecutive time and is expected to raise the policy rate to 4.50%, reaching the highest level since October 2008.
However, salary growth has still failed to catch up with price increases, with a substantial decrease of 4.1%, marking the largest decline since 2001. The Bank of England (BOE) predicts that although the Consumer Price Index (CPI) will decline to below 4% by the end of the year unless the economy deteriorates significantly, BOE will hold a negative attitude towards stopping interest rate hikes before confirming a decrease in inflation rates. At present, the market will closely monitor the preliminary real GDP data for the first quarter released on the 12th, the employment statistics for the first quarter on the 16th, and the April CPI data on the 24th to determine the direction of fiscal policy. It is expected that the Bank of England will once again decide to raise interest rates by 25 basis points at its MPC meeting on June 22, raising the policy interest rate to the final target point (terminal interest rate) of 4.75%. It is expected that interest rates will begin to decline after the first quarter of 2024.