Bank of England: One or two policymakers may vote for winding up the net asset purchases early – Rabobank

The August meeting of the Monetary Policy Committee (MPC) of the Bank of England will take place this week. Market participants expect no change. Analysts at Rabobank don’t expect the MPC to offer any clues on under what conditions a first interest rate hike would come.

Key Quotes: 

“We don’t expect any changes to Bank rate. This vote is widely expected to be unanimous. We also don’t think that the MPC will spell out the conditions under which it actually would contemplate a rate hike, as the growth and inflation outlook beyond this year is too uncertain.”

“We look for an 8-1 majority vote to maintain its year-end target for gilt purchases at £875 billion. The MPC already announced a slight slowdown of these purchases in May, creating a glide path. The APF has now completed £821.6 billion worth of purchases at a current pace of £3.44 billion a week. After the conclusion of this week’s meeting, the central bank will publish a new market notice in which it sets out the details on how the APF plans to purchase gilts in the upcoming period. This concerns new net purchases and the reinvestment of the £14.3 billion of cash flows associated with the maturity of the 7 September 2021 gilt. As there are 21 weeks left before year-end, and £67.7 billion of purchases to be made, a change in pace is not imminent.”

“The central bank plans to finish its net asset purchases at the end of the year. One or two policymakers may vote for winding up the net asset purchases early. Such a decision merely creates uncertainty, while its economic impact is insignificant.”

“The MPC will now also formally add negative rates to its tool kit, even as any interest in using this policy has completely faded in recent months. The formal inclusion of negative rates also means that the MPC’s estimate of the effective lower bound needs to be updated.”