FXStreet (Edinburgh) – Analyst Jim Reid at Deutsche Bank reviewed yesterday’s unexpected dovish tone from the BoE.
Key Quotes
“The Bank left rates unchanged at 0.5%, as expected, but what did take the market by surprise were the minutes which signalled that just one of the MPC members (McCafferty) voted for a hike after suggestions that we might see more support for a rate rise”.
“The minutes struck a slightly more dovish tone on the whole than many had been expected too, noting that ‘in light of the reduction in oil prices and appreciation of sterling over the past three months, it appeared that the increase in inflation over the following year would be more gradual than had previously been supposed’.
“McCafferty meanwhile did see that risks to the medium-term inflation outlook were on balance sufficient to the upside to justify a hike, however near term inflation forecasts were given a dent as the 2015 forecast was taken down to 0.3% from 0.6% although 2-year ahead inflation forecasts were given a slight boost”.
“There was much focus on the role of Sterling. The minutes noted that ‘to the extent that the appreciation of Sterling could be expected to weigh on inflation for a persistent period, the corresponding pickup in domestic costs necessary to return inflation to the target within three years would be greater’.
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