Major world central
banks are seen to be playing the suicide checkers game in an attempt to keep
their ultra-lose monetary policy as long as possible to provide stimulus for
national economies that are on their way to a recovery from the pandemic. So, the
first central bank to sketch a framework towards tightening its monetary policy
may lose or win regarding the pace of pandemic relief, mass vaccination and
rising business activity.
The Federal Reserve
(Fed) and European central bank are keeping their record low interest rates
along with other stimulus measures launched a year ago as the pandemic locked
down the global economy. On the contrary, the Bank of Canada lowered its
purchases of government debt by a quarter. So, the Bank of England (BoE) could
face rising loans interest rates for the budget and the strengthening of the
Pound if the BoE even alludes to a tighter monetary policy framework. This move
could lower competitive advantages of the British economy. But the situation for
the central bankers today are more reminiscent of American checkers as the Fed
has a strong hand to set up the rules in this suicide game. So, it seems that the
central banks are not willing to take on the role of a strong or tough
character. The strength now is in a deliberate weakness. So, the BoE gave contradictive
messages in its statement on Thursday as it left its monetary policy unchanged.
The BoE highlighted that the British economy is growing faster than expected
with GDP forecast up to 7.5% in 2021 vs 5% expected in February. The vaccination
process is speeding up with a faster pace than was expected earlier making the
United Kingdom among the leaders in this vaccination run. British Production
PMI rose to 60.9 points, the strongest reading in 89 months.
So, logically it would
be wise to expect that the BoE would move faster towards tighter monetary
policy than was earlier expected and should now provide the framework, or at
least a timeline, for such action. But the BoE failed to meet such expectations
on Thursday, leaving the forecast of a possible interest rate hike to 0.1% by
the second quarter of 2023. The BoE also reconfirmed purchases of government
debt at 875 billion Pounds.
Investors were
confused when trying to read the BoE’s controversial signals. Some found
positive messages of brighter economic perspectives, while others saw the negative
side of keeping seemingly excessive stimulus measures. This confusion resulted
in high volatility of the Pound on Thursday within the 1.38500-1.39400 range.
But, eventually, the Cable was still moving within this range, even though it
is gravitating more towards the upper margin of it.
So, the BoE seems to
be playing this suicide checkers game while taking a back seat leaving the Fed to
take the driving seat, all according to the rules of British Draughts.
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