19 Feb 2015
BoE to tighten rates by more than what is being priced in – GS
FXStreet (Barcelona) - Kevin Daly of Goldman Sachs, maintains a hawkish outlook, forecasting BoE to tighten by more than what the market is currently discounting.
Key Quotes
“We expect the Bank of England to raise Bank Rate for the first time since the crisis in Q4 of this year and for interest rates to rise gradually thereafter.”
“We view the fall in oil prices as broadly neutral for the monetary policy outlook, at least to a first approximation.”
“Assuming long-term inflation expectations are not destabilised by a period of near-zero inflation, we expect the BoE to ‘look through’ the first-round effects of oil on inflation (much as it did in 2008 and 2011, when high oil prices contributed to inflation rising above 5%). This was essentially the message provided by the February Inflation Report.”
“Our monetary policy forecast is somewhat more hawkish than market pricing, which discounts the first hike in 2016Q1 and a slower pace of tightening thereafter.”
“While there are risks to our forecast – particularly as it relates to the timing of the first hike – if our relatively optimistic views on growth and wage inflation prove to be correct, we are comfortable with the view that the BoE will tighten by more than the market is currently discounting.”
“Although we expect the BoE to tighten faster than the market is pricing, we nevertheless expect it to tighten more gradually than the US Fed. “
Key Quotes
“We expect the Bank of England to raise Bank Rate for the first time since the crisis in Q4 of this year and for interest rates to rise gradually thereafter.”
“We view the fall in oil prices as broadly neutral for the monetary policy outlook, at least to a first approximation.”
“Assuming long-term inflation expectations are not destabilised by a period of near-zero inflation, we expect the BoE to ‘look through’ the first-round effects of oil on inflation (much as it did in 2008 and 2011, when high oil prices contributed to inflation rising above 5%). This was essentially the message provided by the February Inflation Report.”
“Our monetary policy forecast is somewhat more hawkish than market pricing, which discounts the first hike in 2016Q1 and a slower pace of tightening thereafter.”
“While there are risks to our forecast – particularly as it relates to the timing of the first hike – if our relatively optimistic views on growth and wage inflation prove to be correct, we are comfortable with the view that the BoE will tighten by more than the market is currently discounting.”
“Although we expect the BoE to tighten faster than the market is pricing, we nevertheless expect it to tighten more gradually than the US Fed. “