Halister News

(Bloomberg) -- The Bank of England signaled more easing is possible as all of the tools it used to stimulate the economy today have scope to be extended, including further rate cuts.

• Carney’s opening remarks; link to BOE monetary policy summary, to Quarterly Inflation Report here, to market notice on new measures

DID THE MPC CUT RATES? BY HOW MUCH?

• The Bank cut rates by 25bps to 0.25%
• All but 2 of 52 economists polled by Bloomberg expected the BOE to cut rates today; median est. was 25bp cut, while 3 saw deeper reductions
• The size of the cut reflects MPC’s ability to provide stimulus in other ways, allows room for further reductions for meetings later in the year after more data

WHAT ABOUT QE?

• The bank said it will extend the program to GBP435b, including GBP10b in corporate-bond purchases (to run for 18 months initially)
• The median forecast in a Bloomberg survey was for asset purchase facility to remain unchanged at GBP375, though there was a wide spread of views, with the highest estimate at GBP525b
• Estimate around 150 firms are eligible, thinks GBP10b is “quite feasible,” BOE Deputy Governor Minouche Shafik says
  • Range of things MPC could do to expand the universe if the committee decided it wanted further stimulus

AND THE FLS?

• BOE launched a long-term funding scheme; the new TFS is a pure monetary policy instrument, compared with old FLS
• Likely to be more stimulative pound-for-pound than the FLS
• MPC is determined that the stimulus the economy needs does not get diluted as it passes through the financial system
• There are penalties if banks reduce net lending
• NOTE: The FLS was scheduled to end in January 2018

HOW SPLIT WERE THE VOTES?

• MPC voted 6-3 on QE; Weale, Forbes, McCafferty dissented
• MPC voted 8-1 on corp. bonds; Forbes dissented
• Nomura’s Jordan Rochester said ahead of the decision that if the Bank cuts by 25bps and the vote is unanimous, the market may see a significant chance of another cut in November, while a 5-4 split would suggest a longer wait
• Every single one of the MPC is of the view that economy needed stimulation now

THE MIX OF ANY FUTURE EASING?

• All of the measures have the scope to be increased
• Majority of MPC members would expect further rate cut at one of coming meetings
• BOE continues to stand ready to take whatever action is needed
• The majority of members of the MPC would move bank rate to just above lower bound if the economy’s development is broadly consistent with this Inflation Report
• Carney reiterates he’s not a fan of negative interest rates, has seen their negative consequences in other jurisdictions
  • MPC has other options to provide stimulus if needed; BOE doesn’t need to go to that resort
  • MPC is very clear that the effective lower bound is close to zero but is a positive number
  • TFS is a facility that also means committee has some limited, but additional flexibility to lower bank rate further if needed in a way that allows it to pass through

ANY UPDATE ON BREXIT VIEWS?

• Cuts 2017 growth forecast to 0.8% vs 2.3% in May report; 2018 est. lowered to 1.8% vs 2.3%, the most ever in a single Inflation Report
• BOE sees inflation at 1.9% in 3Q 2017, vs 1.5%; at 2.4% at 2-yr, 3-yr horizons
• MPC has been conservative in its interpretation of data
• U.K.’s trade relations will change but how will be unknown for some time; even after stimulus, unemployment expected to rise to about 5.5% over next 2 yrs
  • Ben Broadbent said data taken at face value would suggest economic contraction; need data to recover in coming months to meet the BOE’s forecasts

WHAT DOES THE BANK SAY ABOUT STERLING AND INFLATION?

• Deterioration in sterling will boost exports, reduce imports; expects current-account deficit to halve in 3 yrs
• MPC’s remit recognizes that when shocks extend over a long period, committee faces trade-off that’s likely to be between returning CPI to target and stabilizing economy
• Targeting the latter could mean even more lost output and total disregard for unemployment; such outcomes would be undesirable in themselves and unlikely to be able to generate sustained return of inflation to target beyond the 3-yr horizon

FISCAL POLICY

• Monetary policy is more nimble and it’s appropriate that it’s the first responder to a shock
• Can’t do anything about structural problems
• Has made no assumption on any change in fiscal policy

HELICOPTER MONEY

• Don’t see the merit of such a strategy; MPC has a range of tools, still has scope under the tools announced today
• There are other things BOE could do if necessary