Bank of England chief downplays chance of interest rate hike

20 June, 2017, 13:58 | Author: Leticia Walters
  • Brexit talks, Carney and Politics: time for the pound to break free?

Bank of England Governor Mark Carney is downplaying the possibility of an interest rate increase amid the uncertainty wrought by Britain's pending departure from the European Union.

"Carney pushed the pound lower" on comments that now wasn't the time to hike rates, said Neil Jones, head of hedge fund sales at Mizuho Bank.

Last week, three BoE policymakers of the eight on the Monetary Policy Committee unexpectedly voted to raise interest rates.

Carney, in a speech to business leaders Monday, said that while rates will have to rise as spare capacity in the economy declines, "now is not yet the time to begin that adjustment".

"I would like to see how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations", he added.

Ian McCafferty, Michael Saunders and Kristin Forbes all voted for a rate rise, but the other five members chose to keep rates at their current level.

External members Ian McCafferty, Michael Saunders and the outgoing Kristin Forbes supported a rise to 0.5% after the rate of inflation hit 2.9% in May - its highest level in nearly four years.

GBP/USD falls 0.5% to 1.2678, after reaching a one-week low of 1.2668EUR/GBP climbs 0.5% to 0.8796 Yield on 10-year gilts drops 2 bps to 1.01%.

Carney's speech comes a day after the start of talks to leave the European Union, which saw British negotiators give in to demands to discuss the terms of its divorce - including the exit fee - before any consideration can begin on the future trade deal Britain wants with Europe's common market.

On Brexit, the governor said the country will soon "begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption". Sterling continues to trade down against a basket of currencies, down 0.43 percent against the Euro and 0.35 percent against the Yen.

"The UK houses some of the world's largest CCPs (central counterparty clearing houses)", he said. "Carney was too aggressive in his easing of monetary policy in the awake of Brexit, and now it seems that he doesn't want to increase interest rates in case he has to cut them again".

But he said the latest MPC recruit, who has British, Argentinian and Italian citizenship, was likely to "shift the MPC's balance in a dovish direction".

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