CENTRAL BANKS FOLLOW THE MARKET!

15th Feb '11 by Isaac

3 comments 2162 reads

I have found some clear evidence that the BOE is going to follow the market is give us a rate rise sooner rather then later.

I think the FED will follow at somepoint too as the markets have been indicating higher rates for sometime.

Mr King said: "Inflation is likely to continue to pick up to somewhere between 4 per cent and 5 per cent over the next few months, appreciably higher than when I last wrote to you. That primarily reflects further pass through from recent increases in world commodity and energy prices."

However, he then explained that inflation was equally likely to be above or below the target two or three years away, crucially, “under the assumption that Bank Rate increases in line with market expectations”.

Economists said this key phrase meant that Mr King had backed market predictions that interest rates would rise on three occasions before the end of the year.

Philip Rush, economist at Nomura. He said Mr King’s letter saw the governor “come as close as he can to support market rate expectations” without explicitly giving away the Bank's plans.

"This in effect is an endorsement of the market rate profile which projects three hikes by year end as a roughly appropriate path for policy."

http://uk.finance.yahoo.com/news/Interest-rates-rise-Mervyn-tele-1860741944.html?x=0

http://www.telegraph.co.uk/finance/economics/8326357/Interest-rates-to-rise-Mervyn-King-hints.html

I have to admit that I found it pretty amusing watching David Kuo from TMF being pretty aggresive about his thoughts on Interest rates being so low & that we should'nt bail out the reckless borrowers. I do agree with everything he said arund about 10am BBC news this morning.

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Isaac

15th Feb '11

I think it is worth watching first 20mins of newsnight. The current Interest rate system means no one takes accountability when BOE does'nt meet inflation target. There is merely an exchange of letters between the Chancellor and the BOE & that is the end of that. Which is kinda stupid.....

Interest rates likely to rise to 1.25% by the end of the year and next year is when the markets are expecting interest rates to rise property.

Interesting graphs here showing gradual rise in 1 & 5 year swaps rates : http://www.thisismoney.co.uk/interest-rates

Clearly shows a rising trend since Oct2010 so the BOE follows the markets.

Mervyn King has been dead wrong, last year he said Inflation would fall back into target in 12 months time in early 2010.

Now he is saying inflation will persist above target for next 2-3 years. Mervyn King warns of inflation for next three years - http://www.telegraph.co.uk/finance/economics/8325943/Mervyn-King-warns-of-inflation-for-next-three-years.html

Mervyn is paid about £300k a year. I think it is a waste of public money and he should resign as he clearly is'nt very good at his job which is to target inflation at 2%. If anything inflation has been higher then this figure for the last 13 months and is likely to continue for the rest of the year.

UK inflation rose, as expected, to 4.0% in January, up from 3.7% in December. This is the highest rate since late-2008, when record oil prices caused inflation to spike higher. Oil prices are again to blame for the current increase, alongside higher food prices and the depreciation of sterling, which has increased the cost of imports.

Clearly, all of these factors are largely outside of the Bank of England's control, and would not be affected by any change to interest rates. However, the data do nothing to change the dilemma facing the Bank, whereby short-term price pressures are encouraging some members of the monetary policy committee to hike interest rates

http://www.guardian.co.uk/business/2011/feb/15/inflation-what-the-experts-say

I think you are dead wrong. With hgher interest rates we have a stronger £ which in turns allow us to buy more Oil, Food, Gas etc for our money. It really frustrates me when you have these individuals that write nonsense in the press.

I think the minutes of the BOE meeting will show there are more then 2 hawks from the last meeting & I think that is the reason Mervyn hinted a rate rise is coming....

macroeconomix

Inflation as a result of debt monetization is a deliberate tax.
The trick is in fooling the public in such a way that:
- they don't panic (causing run away/hyper inflation)
- suspect that they are being taxed

In this sense, Merv is doing a "sterling" job.

CENTRAL BANKS FOLLOW THE MARKET!

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Isaac

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