Minutes Show Bank Of England's MPC Voted Unanimously To Keep Base Rate In August

Wednesday, August 15, 2007 10:57:29 AM - The Bank of England's nine-member strong Monetary Policy Committee cast a unanimous vote to hold the key interest rate early August, showed the minutes of the meeting, released Wednesday. Policymakers preferred to stick to a wait and watch stance to study the effect of the previous five hikes in less than a year.

The MPC voted 9-0 during the rate-setting session, which was held on August 1 and 2, when the central bank maintained the official bank rate at a six-year high of 5.75%, after boosting it by 25 basis points in the previous month.

In July, the MPC had voted 6-3 to lift rates, when the BoE raised interest rates for the fifth time since August 2006. The interest rate is currently at its highest level since April 2001.

The minutes stated, “The future path of Bank Rate would depend on the evidence in the months ahead about whether and how the risks were crystallizing; most members emphasized that they had no firm view on whether rates would need to rise further.”

Official data revealed a day earlier that the UK annual inflation rate sharply fell in the month of July. The Consumer Price Index - CPI annual inflation stood at 1.9% in July, much below the 2.4% witnessed in the previous month. Economists had expected the rate to moderately slow to 2.3% in July. The July annual inflation rate is the lowest since March 2006, when it was 1.8%.

The July annual inflation rate unexpectedly came in below the central bank target of 2%, after lingering above the level for 14 months. Annual inflation touched 3.1% in March, breaching the sensitive level of 3%. The March rate forced the central bank chief Mervyn King to pen an explanatory letter to the Chancellor.

Going forward, policymakers said, “…the near-term outlook was still clouded with uncertainty, particularly about the path of household goods, food and utility prices.” This matched the view presented in the Inflation Report.

The MPC were not in possession of the July inflation data during the August session. Members were of the opinion that “CPI inflation had continued to return towards the target in June, reducing the probability that inflation expectations would become dislodged.”

The latest inflation data dampened expectations of another interest rate hike from the Bank of England in the near term. However, analysts say upward inflationary pressures persist in the U.K. economy.

The Bank of England minutes comes at a time when global stock markets are experiencing extreme turbulence due to concerns over the U. S. subprime rout. Central banks across the globe continue to intervene in the financial market pumping in and mopping off liquidity to calm markets faced with a credit crunch. The minutes stated, “…members largely viewed the credit market developments as posing a risk to their projections for output and inflation, rather than a factor directly influencing their central view.”

The Inflation Report of the BoE, released last week, showed that policymakers expect inflation to remain above the 2% target until 2009, if interest rates move in sync with market expectations. The central bank also hinted in the report that it may have to raise the key interest rate one more time to bring inflation back to target.

Separately, the Office for National Statistics announced that U.K claimant count rate came in at 2.6% in July. The rate dropped 0.3 percentage points from the previous year. Economists expected a rate of 2.7%. The claimant count totaled 855,300, down 8,500 from June. On an annual basis, claimant count slid 99,800.

Further, the ONS said that the jobless rate dropped 0.2 percentage points to 5.4% during three months to June. The number came in line with economists' expectations. Compared to last year, the unemployment rate fell 0.1 percentage point. The jobless level was 1.65 million, down 29,000 annually.

The annual growth in average earnings excluding bonuses was 3.4% during three months to June. The number matched economists' expectations. Meanwhile, earnings including bonuses slid 0.2 percentage points to 3.3%. Economists expected the earning growth including bonus to remain stable at 3.5%.


Dollar Returns To Overnight Levels Against Major Counterparts []

Wednesday, August 15, 2007 10:30:11 AM - The dollar was little moved on Wednesday in New York amid uncertain trading against the other majors. The greenback reached near-term highs against the euro and dollar and a five-month low against the yen in early activity. The buck changed its course in the mid-morning and returned close to its overnight mark against all three. Trading took place as the Fed cancelled overnight repurchase options, a move that pushed U.S. stocks higher. Investors also mulled U.S. CPI data, which was in-line with analyst expectations.

The U.S. dollar cooled off in the mid-morning against the euro on Wednesday in New York to give up part of its earlier gains. Earlier, the greenback extended a six-week high. The greenback moved up starting around 8:45 a.m. ET and got as high as 1.3458 at 9 a.m. ET. It fell back about 45 minutes later and traded at 1.3496 at 10:30 a.m. ET. Overall, the dollar has been gaining on the euro for a week.

The greenback was little-moved against the sterling and remained near an eight-week high on Wednesday in New York. The buck began to drop sharply at around 9:45 a.m. ET and gave back gains from earlier in the morning, when it reached as high as 1.9856. The pair moved at 1.9919 at 10:10 a.m. ET.

The dollar rebounded against the yen to get back to its overnight levels after falling to a five-month low earlier Wednesday in New York. It got as low as 116.62 at 10:15 a.m. ET. The buck began to surge at around 9:45 a.m. ET and moved back to 117.31 a half-hour later.

The consumer price index, released Wednesday morning, report revealed that the CPI for July increased at a rate of 0.1 percent, less than the 0.2 percent increase in June. This is the slowest growth rate since November. Analysts had predicted a 0.1 percent increase. The core CPI reading also matched June's increase of 0.2 percent.