Several top ECB policymakers have today voiced their thoughts on the future of the bank’s interest rate hikes, highlighting a variety of perspectives.
Yannis Stournaras, Chief of Greek Central Bank, hinted towards the nearing end of interest rate increases, stating, “It looks like we are very close to the end of interest rate rises.” While he doesn’t completely rule out another possible hike in September, he noted, “if there is one further – I see it difficult – in September, I believe we will stop there.”
However, Slovakia’s Central Bank Head Peter Kazimir suggested a less definitive stance, indicating a pause rather than an outright end to the cycle of rate increases. “Even if we were to take a break in September, it would be premature to consider it automatically…the end of the cycle,” Kazimir opined, further adding, “We are looking for the right place to stay for a large part of next year…And you will recognize that it has to be a place where we all must like it a little.”
Adding a nuanced perspective to the discourse, Francois Villeroy de Galhau, head of French Central Bank, expressed the ECB’s growing confidence that it will achieve its 2% inflation target by 2025, attributing this confidence to the effective transmission of rate hikes to the broader economy.
Villeroy emphasized the need for continued perseverance and pragmatism, stating, “Given the time needed for this full transmission, perseverance is now the prime key virtue. Pragmatism is second – decisions at our next meetings will be open and entirely data driven.”
BoE likely to hold to for the second straight meeting
BoE stands at a critical juncture as it is expected to maintain its policy interest rate at 5.25% today, marking the second consecutive pause in tightening. This decision comes in the wake of September’s UK CPI remaining steady at 6.7%, defying market expectations and signaling a halt in the disinflation process. Conversely, the prevailing weak growth data underscore increasing risks of recession, placing the BoE in a challenging policy dilemma.
Today’s meeting is set to highlight the existing divides within the nine-member MPC. September’s decision, which resulted in no change, saw a tight vote, with 5 members in favour and 4 against. Given the nuanced economic picture, a shift in this balance, although unexpected, is still within the realm of possibility.
The central bank will also unveil its new economic forecasts. Given the recent string of subdued data, BoE is anticipated to downgrade its short-term projections for growth. Yet, looking further out, the bank might elevate its growth expectations for the two- and three-year marks, influenced by factors such as lower interest rates and a depreciated sterling.
One of the prevailing discussions in financial circles revolves around which major central bank will be the first to reduce interest rates. As it stands, market consensus suggests that BoE may trail its counterparts, ECB and Fed. Current projections don’t anticipate a rate cut by BoE with over a 50% likelihood until August 2024. However, should BoE’s upcoming forecasts reflect a significant downward adjustment in inflation outlook, this timeline and market sentiment could be poised for a change.
Some suggested readings on BoE:
While GBP/CHF’s rebound in the last two week has been strong, it’s capped by 1.1053 support turned resistance, as well as 55 D EMA. Risk stays on the downside for larger decline from 1.1502 to continue. Break of 1.0937 minor support will retain near term bearishness, and bring retest of 1.0779 first. However, sustained break of 1.1058 will raise the chance of bullish reversal, and target 1.1212 structural resistance for confirmation.