<ul><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/boe-raises-bank-rate-by-50-bps-to-350-as-expected-20221215/“ target=“_blank“ rel=“follow“>Prior</a> 3.50%</li><li style=““ class=“text-align-justify“>Bank rate vote 7-2 vs 7-2 expected (Tenreyro and Dhingra voted to keep rates unchanged, similar to the December meeting)</li><li>Further increases in bank rate may be required</li><li style=““ class=“text-align-justify“>If there were to be evidence of more persistent pressures, then further tightening of monetary policy would be required</li><li style=““ class=“text-align-justify“>CPI likely to have peaked</li><li style=““ class=“text-align-justify“>Inflation to fall to 3.92% by Q4 2023 (previous forecast 5.2%)</li><li style=““ class=“text-align-justify“><a target=“_blank“ href=“https://www.forexlive.com/terms/i/inflation/“ class=“terms__main-term“ id=“ad51a5a2-1afc-4f42-9e62-ea6faf6f90fa“ target=“_blank“>Inflation</a> risks still skewed significantly to the upside</li><li style=““ class=“text-align-justify“><a target=“_blank“ href=“https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2023/february-2023″ target=“_blank“ rel=“nofollow“>Full statement</a></li></ul>

This article was written by Justin Low at www.forexlive.com.

<ul><li>50 bps rate hike</li><li>Reaffirming another 50 bps rate hike in the next meeting</li><li style=““ class=“text-align-justify“>Reiterate that inflation remains stubbornly high and that ECB is committed to fighting that</li><li style=““ class=“text-align-justify“>Repeat that policy path remains very much data-dependent</li></ul><p style=““ class=“text-align-justify“>If there is a checklist for the ECB policy decision and messaging today, the above four points will likely be it.</p><p style=““ class=“text-align-justify“>That points to quite a straightforward one in terms of what we are all expecting but there might be some subtle changes to look out for. Let’s get straight into it.</p><p style=““ class=“text-align-justify“>For one, another 50 bps rate hike today puts the ECB closer towards a peak in its tightening cycle. While they are likely to repeat another call for a 50 bps rate hike at the next meeting, it is unlikely to see Lagarde commit to anything beyond that – at least not in a firm manner.</p><p style=““ class=“text-align-justify“>As such, expect the ECB to only reaffirm a 50 bps rate hike for March. As for what comes after, that will depend on Lagarde and we are likely to just hear something more vague that offers up some flexibility.</p><p style=““ class=“text-align-justify“>In terms of the statement, we might get a change in wording on this passage potentially:</p><p style=““ class=“text-align-justify“>“In particular, the Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.“</p><p style=““ class=“text-align-justify“>The relief for the ECB in the past few months has been that we saw a less harsh winter in Europe and energy prices have come down from extremely high levels. And even so, core inflation remains high across the region and continues to pose a problem for policymakers coming into today.</p><p style=““ class=“text-align-justify“>But in any case, the fact that we got such a development has granted the ECB more flexibility to be more hawkish as the economy continues to hold up – for now at least.</p><p style=““ class=“text-align-justify“>I think even in the event that we do see a more hawkish communique from Lagarde & co. today, broader markets are likely to be able to take that all in without as much difficulty as it would have been in the past.</p><p style=““ class=“text-align-justify“>We all know that no matter what the ECB says, we are getting closer to a peak in rates – which will see it move towards more restrictive territory. And as soon as that starts showing up on economic data releases, I reckon it would not be surprising to see a quick shift from the ECB to start acting like how the BOE is right now.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>The market is firmly expecting a 50 bps rate hike but as mentioned earlier in the day <a target=“_blank“ href=“https://www.forexlive.com/news/the-central-bank-bonanza-continues-later-today-20230202/“ target=“_blank“ rel=“follow“>here</a>, it might not be quite a straightforward one when it comes to the BOE as opposed to the ECB today.</p><p style=““ class=“text-align-justify“>We’ve already seen dissenters in the December meeting <a target=“_blank“ href=“https://www.forexlive.com/centralbank/boe-raises-bank-rate-by-50-bps-to-350-as-expected-20221215/“ target=“_blank“ rel=“follow“>here</a> and that might set up for a bit of a risk that today’s decision might surprise with a 25 bps rate hike instead. Since the last meeting, UK economic data has worsened with retail sales imploding and recession risks continue to be on the rise as the cost-of-living crisis intensifies.</p><p style=““ class=“text-align-justify“>I would expect policymakers to want to figure out a balance between maintaining some degree of hawkishness as they finish off the tightening cycle, and also needing to slow things down as they risk sending the economy off the rails.</p><p style=““ class=“text-align-justify“>Quite frankly, the most surprising thing that the BOE could do today is to put forward a hawkish 50 bps rate hike. However, I’d rate the odds of that as being pretty low among all the likely outcomes. As for a 25 bps move, I think that is certainly a possibility somewhere in the region around 35:65 when pitted against a 50 bps rate hike today.</p>

This article was written by Justin Low at www.forexlive.com.