24 Jan 2014
Flash: BoE allowing rates to kept unchanged for longer? - BAML
FXstreet.com (Guatemala) - Mark Capleton, Rates Strategist MLI (UK) at the Bank of America Merrill Lynch noted details in the FT story around the BoE and forward guidance.
Key Quotes:
"The Financial Times' lead story that forward guidance in the UK has been dropped reads more like an opinion based on a logical thought process than a verbatim report of something the Bank of England Governor has said. Nevertheless, questions about whether (and if so how) to adjust or reinvent guidance are difficult. Whatever happens, crossing the 7% unemployment threshold will present the MPC with the opportunity to consider allowing its QE portfolio to run down (by ceasing to reinvest when redemptions occur)."
"It's not our central case but it would offer dual benefits. By delivering a very mild monetary tightening, the Bank can present this as allowing interest rates to be kept unchanged for longer. It also helps begin to manage down the duration risk of its gilt portfolio."
Key Quotes:
"The Financial Times' lead story that forward guidance in the UK has been dropped reads more like an opinion based on a logical thought process than a verbatim report of something the Bank of England Governor has said. Nevertheless, questions about whether (and if so how) to adjust or reinvent guidance are difficult. Whatever happens, crossing the 7% unemployment threshold will present the MPC with the opportunity to consider allowing its QE portfolio to run down (by ceasing to reinvest when redemptions occur)."
"It's not our central case but it would offer dual benefits. By delivering a very mild monetary tightening, the Bank can present this as allowing interest rates to be kept unchanged for longer. It also helps begin to manage down the duration risk of its gilt portfolio."