Market experts' views on the ECB and the BoE November monetary policy meetings are rather mixed, as recent economic data and the developments in the European debt crisis as well as the implications of the central banks' latest decisions leaves them with options for action this month.
Almost all of the analysts contributing to the special forecast report agree that there is a very slight possibility of the ECB carrying out an interest rate cut at the upcoming meeting because, as Ilian Yotov writes, "with the OMT bond buying program plan already in place" the central bank 2can afford to wait for another month." Only Yohay Elam believes that "there is a good chance that the ECB will cut the rates by 0.25%" in November, in the light of "a small slide in inflation, the worsening economic situation, and fear of another credit crunch."
As far as the BoE monetary policy meeting is concerned, the experts' projections range from "it should be interesting" to "as usual, a non event." The majority believes that there is a possibility of an extension of the asset purchase program by an additional 50 billion pounds. Only Ilian Yotov and Valeria Bednarik are more confident that the BoE will remain on hold at the upcoming meeting.
The upcoming BoE and ECB monetary policy decisions will be announced on November 8 at 12:00 and 12:45 GMT, respectively. Please read below full forecasts of the contributing analysts.
ECB:
"With the OMT bond buying program plan already in place, the European Central Bank has put the ball in the politicians' court and can afford to wait for another month in November. This, of course, does not mean that there will be no more easing in upcoming months, especially if the November 15 Q3 GDP estimate confirms the market's suspicions that a double-dip recession looms over the Euro-zone economy. In addition, although things have been somewhat more peaceful in the last few months, the EU debt crisis is still far from over. It would not be surprising to see the European Central Bank producing another 25 bps cut either in the final month of the year or in the first quarter of 2013. Whether the ECB expands its already inflated balance sheet to buy bonds or announces an additional reduction in the benchmark rate, the euro should feel the pressure, especially if a rate cut makes it an even stronger contender for the title of preferred carry trade currency."
BoE:
"Recent better than expected economic data from the U.K. has reduced the odds of more easing by the Bank of England in November. Although policy makers could still consider a preemptive 50 billion pound Asset Purchase Program expansion to weather the negative impact of a double-dip recession in the Euro-zone (the U.K.'s largest trading partner), such decision will be more likely in the months ahead, especially if the economy takes a turn for the worse. For the time being, the central bank will probably maintain the status quo and will also keep its benchmark interest rate unchanged at 0.50%. The GBP should benefit if, compared with other major central banks, the Bank of England continues to sits on the QE sidelines."
ECB:
"Mario Draghi hinted about the danger of deflation in the euro-zone. Together with a small slide in inflation, the worsening economic situation, and fear of another credit crunch, there is a good chance that the ECB will cut the rates by 0.25% in the upcoming meeting. As long as Spain does not ask for a bailout, the OMT cannot be used to buy bonds. Another LTRO program to lend out money to banks could backfire once again and also buying bonds via the SMP without 'conditionality' would be politically difficult at the moment.A rate cut could weaken the euro."
BoE:
"There is a growing notion that the impressive jump in GDP during Q3 was only a one time 'Olympic Leap'. While there are some other good signs, Q4 could already see a much slower economy. The latest expansion of the Asset Purchase Facility program (or QE) has already run its course and ended recently. An expansion of an additional 50 billion pounds cannot be ruled out in November, but the MPC could wait one more month before acting. A move in December has somewhat higher chances. A move in November will likely hurt the pound temporarily."
ECB:
"Despite the worsening outlook for the Eurozone, I do not expect the ECB to take action on their next monetary policy meeting. Eurozone’s central bank played its cards when announced it will buy bonds of troubled countries on the marketplace and now it is waiting for Spain’s move. There is a slight chance for an interest rate cut, but I think the ECB would not be serious if it did so. Rather, it will state it is ready to intervene on the bond market."
BoE:
"The next Bank of England’s monetary policy meeting should be interesting. The asset repurchase program is about to finish so I would expect an extension of the program by about an additional 50 bln GBP. Some might argue that the economy is recovering due to the better-than-expected GDP reading for the third quarter, but much of this growth is attributed to a onetime event – the Olympics. So I would not put too much emphasis on the GDP data but rather on the general economic situation of the UK. In my opinion, the situation requires further QE and this could be announced on November the 8th."
ECB:
"We do not think that the ECB is ready to cut the refi rate at next week Governing Council meeting. Yet, economic conditions have not been improving. On the contrary, survey data continue to signal that output is still contracting. Inflation is high, but it is likely to moderate going forwards. Inflation expectations are still well anchored and in line with the ECB definition of price stability. Nevertheless the ECB wants to evaluate the impact of its recent adopted measures on the economy. Since the announcement of the OMT in September, financial and monetary conditions have improved, reducing the needs for further interest rate cuts. The ECB is likely to remain on a 'wait and see moods' in the short-run."
"Strong UK Q3 growth (+1% q/q) appears to have put the Bank of England’s Monetary Policy Committee on data-watch. Nonetheless, the question remains what the underlying growth rate of the economy was when the one-off Olympics (which probably added around 0.5pp to GDP growth) and Bank Holiday effects (in comparison to Q2, Q3 had one more working day) are stripped out. Given that UK economic prospects remain clouded by the overseas outlook and especially the euro zone crisis, the economy still stresses a long way to recovery. In this context, we see the chances of more quantitative easing in November to have slipped below 50%. But we still expect another round by February."
ECB:
"I would not expect a new cut in MRO rates as it looks like it isn't having any positive effect in economic growth. Maybe we could see a new 25 bps cut in interest rates before 2012 ends but nothing else. Probably the ECB will focus on its Outright Monetary Transactions mechanism so it is has all its conditions defined in case that Spain asks for help."
BoE:
"The recent GDP data published in UK surprised everyone as it was much better than expected, largely due to the impact of the Olympic Games celebrated in August this year. However, this is an unexpected shock that doesn't have to be sustained over time so it is too early to assess whether the BoE have completed the QE round. Once we know the GDP growth figures for the last quarter of this year, we will see if growth is sustained enough so we could consider that QE is over."
ECB:
"Valeria Bednarik Although not discarded, the possibility of further rate cuts is pretty weak despite latest European data continues to signal economic weakening in the EU. Market is not expecting such movement, and if done, the surprise is what’s going to rock markets. Taking a look back latest cut applied in July that left the rates at its lowest historical level of 0.75%, saw the EUR/USD lost nearly 150 pips intraday, yet things may be a bit different this time: market may see a rate cut as another step taken towards recovery and therefore favor euro gains against most rivals."
BoE:
"While is indeed a possibility, the fact is that whether or not they become less inclined towards QE, the upcoming BOE meeting will be as usual, a non event: I won’t be expecting a change in current rates, and indeed, a reduction of the asset purchase program is out of the table. More light may come later on the month with Minutes. However, I won’t be expecting any change then either, as the bank will likely refrain from changing actual monetary policy based just in latest few positive readings."
Almost all of the analysts contributing to the special forecast report agree that there is a very slight possibility of the ECB carrying out an interest rate cut at the upcoming meeting because, as Ilian Yotov writes, "with the OMT bond buying program plan already in place" the central bank 2can afford to wait for another month." Only Yohay Elam believes that "there is a good chance that the ECB will cut the rates by 0.25%" in November, in the light of "a small slide in inflation, the worsening economic situation, and fear of another credit crunch."
As far as the BoE monetary policy meeting is concerned, the experts' projections range from "it should be interesting" to "as usual, a non event." The majority believes that there is a possibility of an extension of the asset purchase program by an additional 50 billion pounds. Only Ilian Yotov and Valeria Bednarik are more confident that the BoE will remain on hold at the upcoming meeting.
The upcoming BoE and ECB monetary policy decisions will be announced on November 8 at 12:00 and 12:45 GMT, respectively. Please read below full forecasts of the contributing analysts.
Ilian Yotov - FX Strategist and Founder at AllThingsForex:
ECB:"With the OMT bond buying program plan already in place, the European Central Bank has put the ball in the politicians' court and can afford to wait for another month in November. This, of course, does not mean that there will be no more easing in upcoming months, especially if the November 15 Q3 GDP estimate confirms the market's suspicions that a double-dip recession looms over the Euro-zone economy. In addition, although things have been somewhat more peaceful in the last few months, the EU debt crisis is still far from over. It would not be surprising to see the European Central Bank producing another 25 bps cut either in the final month of the year or in the first quarter of 2013. Whether the ECB expands its already inflated balance sheet to buy bonds or announces an additional reduction in the benchmark rate, the euro should feel the pressure, especially if a rate cut makes it an even stronger contender for the title of preferred carry trade currency."
BoE:
"Recent better than expected economic data from the U.K. has reduced the odds of more easing by the Bank of England in November. Although policy makers could still consider a preemptive 50 billion pound Asset Purchase Program expansion to weather the negative impact of a double-dip recession in the Euro-zone (the U.K.'s largest trading partner), such decision will be more likely in the months ahead, especially if the economy takes a turn for the worse. For the time being, the central bank will probably maintain the status quo and will also keep its benchmark interest rate unchanged at 0.50%. The GBP should benefit if, compared with other major central banks, the Bank of England continues to sits on the QE sidelines."
Yohay Elam - Analyst at Forex Crunch:
ECB:"Mario Draghi hinted about the danger of deflation in the euro-zone. Together with a small slide in inflation, the worsening economic situation, and fear of another credit crunch, there is a good chance that the ECB will cut the rates by 0.25% in the upcoming meeting. As long as Spain does not ask for a bailout, the OMT cannot be used to buy bonds. Another LTRO program to lend out money to banks could backfire once again and also buying bonds via the SMP without 'conditionality' would be politically difficult at the moment.A rate cut could weaken the euro."
BoE:
"There is a growing notion that the impressive jump in GDP during Q3 was only a one time 'Olympic Leap'. While there are some other good signs, Q4 could already see a much slower economy. The latest expansion of the Asset Purchase Facility program (or QE) has already run its course and ended recently. An expansion of an additional 50 billion pounds cannot be ruled out in November, but the MPC could wait one more month before acting. A move in December has somewhat higher chances. A move in November will likely hurt the pound temporarily."
Adam Narczewski - Financial Analyst at X-Trade Brokers, XTB:
ECB: "Despite the worsening outlook for the Eurozone, I do not expect the ECB to take action on their next monetary policy meeting. Eurozone’s central bank played its cards when announced it will buy bonds of troubled countries on the marketplace and now it is waiting for Spain’s move. There is a slight chance for an interest rate cut, but I think the ECB would not be serious if it did so. Rather, it will state it is ready to intervene on the bond market."
BoE:
"The next Bank of England’s monetary policy meeting should be interesting. The asset repurchase program is about to finish so I would expect an extension of the program by about an additional 50 bln GBP. Some might argue that the economy is recovering due to the better-than-expected GDP reading for the third quarter, but much of this growth is attributed to a onetime event – the Olympics. So I would not put too much emphasis on the GDP data but rather on the general economic situation of the UK. In my opinion, the situation requires further QE and this could be announced on November the 8th."
Clemente De Lucia - Economist at BNP Paribas:
ECB:"We do not think that the ECB is ready to cut the refi rate at next week Governing Council meeting. Yet, economic conditions have not been improving. On the contrary, survey data continue to signal that output is still contracting. Inflation is high, but it is likely to moderate going forwards. Inflation expectations are still well anchored and in line with the ECB definition of price stability. Nevertheless the ECB wants to evaluate the impact of its recent adopted measures on the economy. Since the announcement of the OMT in September, financial and monetary conditions have improved, reducing the needs for further interest rate cuts. The ECB is likely to remain on a 'wait and see moods' in the short-run."
Caroline Newhouse - Senior Economist at BNP Paribas:
BoE:"Strong UK Q3 growth (+1% q/q) appears to have put the Bank of England’s Monetary Policy Committee on data-watch. Nonetheless, the question remains what the underlying growth rate of the economy was when the one-off Olympics (which probably added around 0.5pp to GDP growth) and Bank Holiday effects (in comparison to Q2, Q3 had one more working day) are stripped out. Given that UK economic prospects remain clouded by the overseas outlook and especially the euro zone crisis, the economy still stresses a long way to recovery. In this context, we see the chances of more quantitative easing in November to have slipped below 50%. But we still expect another round by February."
Alberto Muñoz - Forex Analyst at FXstreet.com:
ECB:"I would not expect a new cut in MRO rates as it looks like it isn't having any positive effect in economic growth. Maybe we could see a new 25 bps cut in interest rates before 2012 ends but nothing else. Probably the ECB will focus on its Outright Monetary Transactions mechanism so it is has all its conditions defined in case that Spain asks for help."
BoE:
"The recent GDP data published in UK surprised everyone as it was much better than expected, largely due to the impact of the Olympic Games celebrated in August this year. However, this is an unexpected shock that doesn't have to be sustained over time so it is too early to assess whether the BoE have completed the QE round. Once we know the GDP growth figures for the last quarter of this year, we will see if growth is sustained enough so we could consider that QE is over."
Valeria Bednarik - Chief Analyst with FXstreet.com:
ECB:"Valeria Bednarik Although not discarded, the possibility of further rate cuts is pretty weak despite latest European data continues to signal economic weakening in the EU. Market is not expecting such movement, and if done, the surprise is what’s going to rock markets. Taking a look back latest cut applied in July that left the rates at its lowest historical level of 0.75%, saw the EUR/USD lost nearly 150 pips intraday, yet things may be a bit different this time: market may see a rate cut as another step taken towards recovery and therefore favor euro gains against most rivals."
BoE:
"While is indeed a possibility, the fact is that whether or not they become less inclined towards QE, the upcoming BOE meeting will be as usual, a non event: I won’t be expecting a change in current rates, and indeed, a reduction of the asset purchase program is out of the table. More light may come later on the month with Minutes. However, I won’t be expecting any change then either, as the bank will likely refrain from changing actual monetary policy based just in latest few positive readings."
