ECB, BoE Leaves Benchmark Interest Rate Unchanged in July
As widely expected, the BoE left its key overnight lending rate and asset purchase program unchanged for the month of July as the committee maintains an accommodative monetary policy in order to support the lethargic recovery. In the near term, Inflation will likely remain capped by subdued wage growth paired with a blurry labor market. Going forward, the BoE will likely keep rates low until next year as household spending slows on the back of fiscal policy tightening. The minutes of the meeting will be published on Wednesday, July 21st.
Meanwhile, the European Central Bank kept interest rates unchanged at 1.00 percent. Looking at the recent actions from policy makers in the region, the ECB began buying government bonds in May in order to battle speculation that the 11-year old euro would separate. Going forward, the European Central Bank may keep rates near zero longer than previously forecasted as boiling deficits lead governments to phase out stimulus measures. Markets await comments by officials which are expected to be released in the next hour. In particular traders are keen to gain further insight on EU bank stress tests, and on the formation of EU-wide financial regulators. As of late, Spain said 95 percent of their banks will be included in the stress tests measures. In addition, according to an article by Reuters, European Central Bank President Jean Claude Trichet is said to meet with banks on July 21st, two days prior to when the results will be released. At the meeting, Trichet will evaluate whether some of the commercial lenders will need to capitalize their balance sheets as the banking system remains weak.
During the press conference in Frankurt today, Trichet said that rates are appropriate as “inflation expectations remain firmly anchored. In addition, Trichet said that “where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalization.”
Written by Michael Wright, Currency Analyst
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