The Bank of England, with a majority of votes, increased the policy rate by 0.15 points to 0.25% and took back the rate cut it made with the pandemic. BOE was expected to hold rates steady amid the omicron variable increase. In the summary of the decision and Bailey's statement, the prominent items are;
(As a rationale for rate hike) It is likely to be necessary to sustainably meet the 2% inflation target during the forecast period.
The Omicron variant increased the uncertainty, but "inflation seems to be more permanent" was effective in the decision.
It is understood that the BOE preferred not to wait at the point of shaping the monetary policy in line with the increasing inflation expectations. As interest rates rise, factors such as adaptability and flexibility have to be addressed at the point of adjusting fiscal policies. The fact that the tightening of financial conditions has as little impact on economic activity and employment as possible is a detail that central banks take care of.
Despite the uncertain outlook and increasing fragility; Central banks' efforts to control inflation form the basis of current policies. Limited balance sheet intervention at this stage does not initially reflect the tightening effects typical of rate hikes. The increase in inflation to 5.1% in November is the main reason for increasing the cost of funding. The continuation of asset purchases is a precaution against increasing economic uncertainties. Similarly, the ECB has made an addition to its core asset purchase program (which was also before the pandemic) as we move forward in the phase of removing the program introduced by the pandemic as we envision. The Fed will take the tightening cycle further and start raising funding costs after QE ends.
We continue to be at an early stage in observing the impact of economic activity since the new variant began to spread around the world. Service activity poses some risks after rising COVID-19 cases. The economy is still in the strong growth zone.
Kaynak: Tera Yatırım
Hibya Haber Ajansı
