Monday, December 4, 2006

Investec Secuities analyst certain that IR rates won’t rise

Holding interest rates at 5% 'dead cert' despite inflation

INTEREST rates are widely expected to be held at their current level of 5 per cent when the Bank of England' monetary policy committee meets this week

Posted by jellycaster @ 08:44 PM (475 views)
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15 thoughts on “Investec Secuities analyst certain that IR rates won’t rise

  • “Bank of England governor Mervyn King has warned that inflation will continue to rise above target in the coming months before returning towards 2 per cent over the next two years.”

    Looks like two more years of interest rate rises on the way then.

    Good find jellyblaster!

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  • “Bank of England governor Mervyn King has warned that inflation will continue to rise above target in the coming months before returning towards 2 per cent over the next two years.”
    As the BoE target inflation some time in the future, surely this means job done, do nothing?

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  • Rates not rising this week is a no brainer. Perhaps I should be an economist!

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  • So it looks like rates will hold at 5% for the forseeable future. I think this sounds about right but when inflation starts to fall again they should cut back on interest rates so that homeowners aren’t so tight up. This will give the BoE a simple way to fight substandard inflation. Looks like the BoE may just pull this one off afterall
    .

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  • george monsoon says:

    I’m no expert, but we all know that real inflation is 5 or 6 % or more..
    Isn’t this a bit dangerous, to just leave things as they are?

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  • seeing as lomax and blanchflower voted for no change in november, if they have any credibility they will surely vote for a cut this month.bet they don`t though.

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  • Well george, it works like this. The MPC is playing an old trick nicknamed “forget about today, let’s look to the future!”.

    Say if I was a salesman, with a target to sell stuff, I could tell my boss “Well the reason I’m not selling anything today is because I’m working to two years further down the line. Therefore in two years, you should see considerable returns!”. Now yes, he might then say “Well what were you doing two years ago, because you haven’t sold anything this month?” but of course he can’t remember that far back because so much has happenened since what with a new series of Big Brother and all, so that way you get to keep your job and fat salary and you get away with selling absolutely nothing.

    Now you know why the MPC always says its working to a two year window. The reason for letting inflation run now is because they don’t want to slow spending in two years. Yes it begs the question what they were doing two years ago, but … as with the salesman,

    As long as no-one looks at your actual performance record, you’re home and dry!

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  • Paul, given the 1-2 year lag effect of interest rate changes on inflation I think you’re reading too much into Merv’s statement.

    Likewise George, the brief of the BoE is not to chase the 5-6% RPI but, for better or worse, to keep the CPI within 1-2%. I have heard/read somewhere (probably here) that the reason we’re using CPI is to bring us more in line with the ECB as it’s what they use.

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  • Typo, that should read “keep the CPI within 1-3%”

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  • Typo, that should read “keep the CPI within 1-3%”

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  • monty, they’ve been using this trick for years.

    Whenever a cut is being mooted, it’s to accelerate spending today, but whenever a rise is needed, caution has to be applied because “it may affect things two years down the line”.

    It’s an old trick which is wheeled out every time soaring inflation is brought up. That’s why even as we speak, inflation is above target but the BofE is not acting upon it. It’s a poor excuse for inaction.

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  • george monsoon says:

    Ok, I think I understand, but why would higher inflation in the short term be good for the government? It would appear that this is exactly what they want. Do they get extra revenue as a result? does it strengthen or weaken the pound?
    Sorry I am a complete novice with these things, but I learn quickly.

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  • It was back in August when the city was taken by surprise at the increase – so why not take them by surprise again, and increase rates by 1/2 percentage point. If they want to stop people spending and keep inflation under control then they should act tough and take the bull by the horns.

    They will have to do something in Jan or Feb by the latest, combine this with possible above inflation increases in council tax, and general shopping bills, the sqeeze on finances is going to be felt even harder by the public, should we have a cold winter, this will make things even worst with pressure being put on many who cannot afford the Gas and Electricity to heat their homes. Inflation is going to carry on increasing, as costs of goods from Asia continue to increase. Salaries out there are going up 10 percent a year – someone has to pay for this. OK someone paid $4.5 a day in the Phillipenes + 10% does not make a huge difference yet.

    The savior at the moment is that currency exchange is in our favour as much trade from Asia is done in the good old $ – Let this return to the good old days of $1.5 or $1.6 to the £ and this will add the pressure again.

    In my opinion it is going to be a rough ride for the next 3 to 4 years with low wage increases and high inflation, that will see far too many people go bust, during which time houses will hopefully be priced at a more affordable level for those wanting to get on the ladder.

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  • p.o.o.r
    Your views have the surprising backing of the Queens Speech, within it there was that nugget about changing the measurement of future pensions, (currently linked to the retail price index) to that of average wage increases. Oddly enough, historically, when wages are rising, pension increases are linked to prices, and when prices are rising………you get the picture.

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  • george,

    The government has borrowed to the hilt as well. Ignoring inflation makes their debt look smaller, and ignoring it removes the necessity to act upon it.

    Unless of course, the people don’t believe your inflation figures.

    RPI = Real Price Index
    CPI = Contrived Price Index

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