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Central Banks: ECB and BoE

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Review of Sep 4 meeting: Both banks on hold

Fri, Sep 5 2008, 09:18 GMT
by Marina Schiaffino

FXstreet.com

The European Central Bank (ECB) has left its interest rate on hold at 4.25% as markets originally expected. Consumer prices will, according to Trichet, remain above the margins of price stability for a protracted period, and the GDP growth for 2008 has been revised down, but the ECB’s president believes that lower oil prices will come to strengthen spending power.

In his first conference after having announced the decision of keeping interest rates unchanged at 4.25%, Trichet has affirmed that there are upside risks to price stability over the medium term and that prices will ease gradually in 2009, as he has reaffirmed the Bank’s intention of monitoring “very closely” all developments, in order to keep CPI expectations anchored.

Following a similar pattern, the Bank of England (BoE) left rates unchanged at 5%, which was also expected by many analysts before the data released this week. The Bank’s monetary policy committee has not provided any further explanation about the decision, the meeting’s minutes will be published on Sep 17th at 8:30 GMT.

Check the effect that the meetings have over the pairs in our Rates and Charts Section or compare the movements of the different banks in our World Interest Rates Table.

• · Read the BoE's Statement
  
• · Read the ECB's Statement
• · Read full Trichet's speech at ECB
  
  

In-Depth Analysis

• · ECB - A fairly neutral statement by Danske Bank A/S
• · Mid-Day Forex Technical Report - EUR/USD Steady after ECB by ActionForex.com
• · Daily Market Report - This morning, the Bank of England announced that it was keeping rates steady at 5.00% by Wachovia

Related News

• · Trichet: Uniform Haircut Of 12% On All Types Of ABS (Dow Jones)
• · ECB toughens collateral rules for accessing liquidity (Thomson Financial News)
• · Trichet: Continued Inflation Risk In Medium Term (Dow Jones)
• · European Central Bank Holds Key Rate At 4.25% (Dow Jones)
• · Dollar rises versus euro after Trichet's comments (Thomson Financial News)
• · ECB statement on extra longer-term refinancing operations (Thomson Financial News)
• · Euro falls versus dollar on Trichet's comments (Thomson Financial News)
• · ECB leaves rates on hold, global tightening nears end (Thomson Financial News)
• · Stg bounces from record low vs euro; BoE on hold (Thomson Financial News)
• · Bank Of England Leaves Key Rate Unchanged At 5% (Dow Jones)
• · Sterling's Support From BOE Decision Could Be Short-Lived (Dow Jones)
  
  

Analysts' comments

• · Geoffrey Yu, currency strategist at UBS
  "(Trichet) is saying they're content. As long as there is no rebound in oil prices, there won't be rate hikes. He didn't hint to any easing either." - Dow Jones
• · Kathy Lien, director of FX research at GFT
  "There is still more trouble for the euro zone economy as factory orders dropped for the eighth month in a row but the hawkish tone of Trichet should lead to a further recovery in the euro especially as U.S. nonfarm payrolls face the risk of falling by -100k." - Thomson Financial News
• · Stephen Malyon, currency strategist at Scotia Capital
  "It looks the euro is weakening off a little bit as the market seizes on President Trichet's observation that the euro zone economy is in an episode of weak activity. However, Trichet continues to highlight upside risks to inflation suggesting policy makers aren't in any rush to lower rates." - Thomson Financial News
• · Steve Radley, chief economist at the EEF
  "So long as inflation remains stubbornly high, the (BoE) will continue to face a tough choice. But mounting evidence of a stagnating economy means the case for further cuts is growing." - Reuters
• · Graeme Leach, chief economist at the Institute of Directors
  "On balance we think this was the right decision. The housing, construction and financial services sectors are clearly desperate for an easing in monetary policy, but outside of these sectors the case for an interest rate reduction now is weaker. The MPC wants to see further evidence of the economic slowdown cascading across the whole economy, before reducing interest rates. The MPC is very conscious that a premature reduction in interest rates now risks even higher inflation and interest rates in the future. The MPC will also be waiting to see if the Blue Book revisions at the end of this month confirm the picture of a sharply slowing economy." - Reuters
• · Ian McCafferty, chief economic advisor at CBI
  "The (BoE) has decided not to cut rates despite the growing weakness of the economy. It clearly remains concerned about inflation, which is likely to rise to just over five per cent in coming months. But as the autumn unfolds, the chances of a rate cut will increase, as the slowdown improves the inflation outlook for next year." - Reuters
  
  

Published on  Fri, Sep 5 2008, 09:18 GMT