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Central Banks will keep rates unchanged tomorrow

Wed, Sep 3 2008, 14:27 GMT
http://www.fxstreet.com

FXstreet.com (Barcelona) – The BoE as well as the ECB’s monetary policy committees will, most likely, keep interest rates on hold tomorrow, amid fears of the economy worsening over the next quarters, which could put pressure on the Banks to cut rates over the coming months.

The Bank of England is expected to maintain its main interest rate at the current 5.0% although British economy seems to be going through one of the hardest periods since the second world war. GDP growth has come to a standstill in the second quarter with the domestic demand contracting for the second consecutive quarter.

The actual economic landscape already made David Blanchflower vote for a rate cut on last month’s meeting, but such a decision is not an easy one to take, specially with inflation running twice as fast as the maximum level admitted as acceptable by the Bank of England.

Analysts suggest November’s meeting as the moment when the BoE could agree a rate cut in case inflationary pressures continue easing.

Similar situation is facing the ECB, about to cut its GDP prospects, inflation, which according to Trichet is the main goal of the Bank’s monetary policy, remains running way too fast, 4.1% year on year in July, but unlike the Bank of England, analysts do not expect any rate cut on the ECB for the rest of the year, on the contrary, Papademos, ECB’s vicepresident, recently hinted at the possibility of a further rate hike, should inflation produce a wage-price spiral.

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