Bank of England plans largest rate increase in 33 years
As nations struggle with the highest prices in decades, the move would be in line with rate tightening by central banks around the world, including the UAE.
In an effort to lower the country’s sky-high inflation rate, the Bank of England is generally anticipated to raise its benchmark interest rate on Thursday by the largest margin since 1989.
According to market opinion, the BoE is expected to increase borrowing costs following a regular meeting by 0.75 percentage points to 3%, which would be the highest level since the 2008 global financial crisis.
However, some analysts are forecasting a one percentage point increase, which would also be a 33-year high.
In response to the highest prices in decades, central banks around the world have been aggressively tightening interest rates.
The US Federal Reserve raised its benchmark lending rate by 0.75 percentage points for the fourth time in a row on Wednesday, bringing it to 3.75–4.0%.
The Fed left the door open for modest increases while still describing additional rises in interest rates as “appropriate” to rein down inflation.
The BoE decision at 12.00 GMT is expected to exacerbate the cost-of-living crisis that millions of Britons are already experiencing as a result of central banks raising interest rates on retail lenders’ own loans.
Mortgage payments in the UK have increased recently, mainly as a result of the markets’ shock caused by the previous prime minister Liz Truss’ debt-fueled budget, which led to her resignation and the BoE’s emergency purchase of UK government bonds.
In an effort to calm the markets, her successor Rishi Sunak hinted at tax increases in a new budget on November 17, even though doing so would be detrimental to the British economy.
Former UK finance minister Sunak told lawmakers on Wednesday: “I think everyone recognizes we do have a hard economic picture and painful decisions will need to be taken.”
The yearly inflation rate in Britain has risen above 10%, the highest level in 40 years, as a result of rising food and utility costs.
The BoE will announce its most recent inflation and growth estimates with its rate decision, and analysts believe the UK economy may already be in a recession.
According to Swissquote analyst Ipek Ozkardeskaya, “the BoE is projected to raise its interest rate by little more than 75 basis points, on the conviction that the Sunak government would decide for modest budgetary discipline, and nothing too outrageous to wreak chaos, again.”
Early in 2020, when the Covid-19 outbreak started, the BoE cut its benchmark interest rate to a record-low 0.1 percent while simultaneously injecting enormous amounts of fresh money into the economy.
The central bank began raising interest rates in December of last year, and another increase on Thursday would be the eighth consecutive increase.
The Bank of England will increase its interest rate by one percentage point on Thursday and by the same amount in December, according to Ruth Gregory, a senior UK economist at Capital Economics.
If we are correct in predicting that domestic inflation will be persistent, she continued, “it may mean that the Bank of England finally needs to act more forcefully in the future.”
The Philippine central bank announced on Thursday that it would raise its benchmark interest rates by 75 basis points later this month to keep pace with the US Federal Reserve’s most recent monetary tightening.
According to Bangko Sentral ng Pilipinas Governor Felipe Medalla, “[The Fed hike] supports the BSP’s stance to hike its policy rate by the same amount in its next policy meeting on November 17.”
In accordance with its responsibility for price stability and the need to mitigate any effects of the most recent Fed rate hike on the country’s exchange rate, the BSP deems it important to preserve the interest rate differential that existed prior to that increase.
Medalla ruled out an off-cycle policy change by stating that the raise would take effect following the meeting on November 17.
Due in part to a weakened peso, which has increased the cost of importing food and gasoline, inflation from January to September averaged 5.1%, significantly above the central bank’s goal range of 2 to 4% for 2022.
Medalla claimed that by matching the Fed’s rate increase, the BSP reaffirmed its steadfast commitment to upholding price stability by combating inflationary pressures brought on by national and international forces.
As he predicted that inflation would return to the 2 percent to 4 percent target range in the second half of 2023 and for the entire year of 2024, he emphasized the BSP’s readiness to “take appropriate policy actions to push inflation toward a target-consistent path.”
The rate hike signal was well received by economists, who saw it as an attempt to calm the markets.
According to Robert Dan Roces, an economist with Security Bank in Manila, “Reaction from BSP was quick and should be able to temper market movements, particularly from the foreign exchange side.”
Roces anticipates rate increases of 75 basis points this month and 50 basis points on December 15, when the policy meeting for this year will be held.
In order to relieve pressure on the peso, Southeast Asia’s worst-performing currency that has lost 12.5% of its value against the US dollar so far this year, interest rates may climb by more than 100 basis points before the year’s end, according to Medalla’s comments from last month.
The overnight reverse repurchase facility rate (PHCBIR=ECI) is now 4.25 percent thanks to the BSP’s five rate increases this year, totaling 225 basis points.
According to Bank of the Philippine Islands’ head economist Emilio Neri, “the rate hikes so far this year have merely normalized our policy settings and aren’t going to trim growth by much.”
