Markets Prepare For ECB and BOE Interest Rate Decisions
Written by A Forex View From Afar on Wednesday, June 03, 2009The European Central Bank (ECB) and the Bank of England (BOE) are expected to keep rates on hold, after reducing the monetary policy stance at a record pace over the past year. Both central banks have the policy rate at the lowest level on record, in order to help the economy recover from what seems to be the biggest downturn since the Great Depression.
The Bank of England is expected to keep rates on hold at 0.50%, the lowest rate in the bank’s three century history. Also, the central bank is seen maintaining the current asset purchase program at 125 billion pounds, after it was extended at the previous meeting by 50 billion pounds.
TheLFB-Forex.com Trade Team noted that the U.K. economy saw the first signs of recovery in May, as the price of houses unexpectedly increased, while the service side of the economy expanded for the first time in a year. This may lead to the U.K. central bank to provide a bullish statement tomorrow, since the bank has already said that the recession is easing in its latest minutes. Additionally, the most bearish member in the voting committee, Mr. David Blanchflower stepped down on 1 June, which might uplift the overall view of the committee on the economic outlook.
At the ECB, things are a little different. The European bank has just announced a new (and small, related to the size of the economy) quantitative policy, and has already received criticism about this. At the last meeting, the European Central Bank announced a plan to buy up to 60 billion euros in covered bonds, in order to help the market recover and lift the inflation expectations. However, the bank’s decision received strong criticism from Angela Merkel, Germany’s chancellor. These comments seem even stronger since the German government has been known to never comment on the central bank’s monetary decisions. Currently, Germany is the biggest economy in the Euro-area, and the ECB was built on the Bundesbank’s legacy.
As such, the ECB is expected to keep the interest rate at 1%, while chances are very small that the central bank will expand its plan to buy covered bonds. TheLFB-Forex.com Trade Team expects Mr. Trichet to put emphasis on the global recovery and on the recent developments in the commodity markets.
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