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A Wave Of Higher Interest Rates Around The World

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09:50 - 02 August 2006
Interest rates are higher around the world. With inflation expectations increasing against a backdrop of higher commodity prices, asset price bubbles and other signs of capacity pressures, several leading central banks are tightening monetary policy by raising the cost of borrowing.
In the last month, the US Federal Reserve has pushed the key Fed Funds rate to 5.25 per cent while the European Central Bank (ECB) has raised its target to 2.75 per cent. Even the Japanese have made their first move since 2000 by moving rates from zero to 0.25 per cent. At home, the current consensus is that the Bank of England is more likely to increase than to cut. The rate has been at 4.5 per cent since August 2005.

I am moving a little more toward thinking the BoE might hike tomorrow. Seems to be a groundswell of opinion that inflation is a reality despite Gordon's basket of tricks. Even the provincial press are repoprting it with sensational headlines describing IR hikes as a "wave." Which, indeed, it is. Could soon be a tidal wave as Japan are indicating more hikes sooner than later.

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I wish you were right RB but sadly I don't think the BOE is really independent. If they were then they would have already raised rates months ago as the inflation trend was heading strongly up and approaching their upper target range of 2%. They know the consequences of raising rates in this country and they are not willing to be responsible for those consequences even though official inflation is now well above target so my bet is a definite NO to interest rate rises tomorrow. To be honest - with all the VIs and MPs pressuring them to keep rates on hold a rate rise could be life threatening in their shoes! :huh:

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