BOE Mark Carney- License to Chill

Everyone was talking about the Super Thursday before the Freaking Friday as Bank of England’s 007 Agent Mark Carney was out to discuss about the interest rate hike in UK. Now, just for sheer entertainment, I shall tell you that the interest rates in UK have been monotonously same for almost six and half years now at 0.5%. The decision on interest rate is discussed by the Monetary Policy Committee formed in the Central Bank consisting of 9 members. So, every quarter BOE presents the Inflation Report and the MPC’s decision about the interest rates followed by a press conference and then…well then starts the magnificent flow of British accent.


If you are still reading this blog, then I must brief you about yesterday’s session of BOE Press Conference. There was a certain hype about this meeting in the form of Super Thursday and fireworks were accepted from the Governor. In 2013, Carney introduced his secret weapon of Forward Guidance which meant that certain levels were to be met before the cost of borrowing increased in UK. It was like me in high school trying to ace in Mathematics to get a bike from father.

Forward Guidance worked well as initial target of achieving unemployment rate below 7 percent was achieved but then BOE’s focus shifted to achieve 2 percent Inflation in the economy. Now. it has become a drill to start the year with a hawkish tone and end with a dovish one. What if Harry Potter was the chosen one, but he would not kill Lord Voldemort just because of his funny nostrils and creepy voice or Batman would not get rid of Joker because then Gotham will be all bored and dull.


On a serious note, this isn’t a movie but it sure is as dramatic as one. Let’s look at some of the key highlights of the MPC Meeting yesterday:

  • The Interest rates were kept unchanged at 0.5% until the inflation target was met.
  • All MPC members except Ian Mccafferty agreed to the above decision regarding rate hike.
  • The UK growth forecast for 2015 was trimmed to 2.5% from 2.8% and to 2.5% from 2.7% for the next year.
  • BOE expected to reach the Inflation target of 2% in two years.
  • The slowdown in China did affect the economic conditions.
  • Consumer demand remained solid.
  • Concerns over emerging markets were seen.

In other words, please prohibit the use of words like Increase, In, Interest or Rate, Hike until mid-2016 or first half of 2017.


But is it really going to take that long for UK to hike interest rates because Fed Chair Yellen looked pretty hawkish during her testimony on Tuesday. 007 Carney was a superstar banker in Goldman Sachs earlier and he was positive about the rate hike few months ago during the MPC meeting. So, what is really going on here?


Earlier, the low oil price was hitting the inflation and now it is the emerging markets, tomorrow it could be the Christmas party dampening the economic environment. We could also have a less funny and a better view. 


May be Mark Carney is the chosen one and he is a really good Governor. When Fed is just steps away from raising the US interest rates and Super Mario is printing euros, the chaos if UK increases the interest rates will be unimaginable. So, if Fed does increase the rates now before Christmas and the UK data continues to be in line with the expectations then may be with a rise in wages and consumer confidence BOE could think of a rate hike earlier than expected.


The effect on GBP/USD, however, was negative after the Inflation Report as the cable fell to 1.5217 levels and is likely to break down further during the Non- Farm Payroll data in few hours. 


Will Mark Carney finally do what he says?

Will Fed hike the US interest rates before Carney?

What will be the effect on Pound and UK index after Carney and NFP?


There is only one way to find it out… Follow the
 TRADE JOKER

Sources and References: The Financial Times, The Globe and Mail, The Telegraph, The New York Times, Nationalave.com , Forbes, Business World,CNN, Asia one,The Wall Street Journal, World Economy, The guardian, The Washington Post
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