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The British Pound Lower After the BoE Keeps Interest Rate Unchanged
South Korea’s central bank on Thursday froze the benchmark interest rate at a record low of 1.5 percent, keeping a wait-and-see stance for six straight months.
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Inflation is now at -0.1% against a target of 2%.
The inter-bank market is quoting sterling-dollar at 1.5157 while your bank will be offering an exchange rate in the region of 1.47-1.48.
The rate setters noted “existing uncertainties mostly referring to the worldwide environment, primarily the uncertain reaction of market participants to an expected increase of interest rate by the Fed and its impact on commodities and financial markets”, the bank said in the statement.
“We suspect that decent United Kingdom economic growth, stronger earnings growth overall and consumer price inflation gradually trending up will prompt the MPC to act around May”.
“Policymakers in the USA, however, faced with an economy growing at a similar rate to the United Kingdom, as well as a similar level of unemployment and inflation and even lower wage growth, are sending a clear message that now’s the time to start the process of normalising policy”.
“With the inflation outlook remaining benign for the foreseeable future and coupled with weaker worldwide growth, the Bank of England is right to keep interest rates on hold”.
Ian McCafferty was again the lone dissenter, favouring a 25 basis point hike in Bank Rate instead.
Britain’s central bank surprised investors last month when it released a barrage of economic forecasts that suggested it might leave rates unchanged until early 2017, pushing down the value of sterling.
Elsewhere, the Australian dollar jumped, last up 0.9% to 0.7289 against its USA counterpart, after the country reported employment growth of 71,000 jobs during November, compared with an expected decline of 10,000.
As in previous months, there is a range of views among MPC members about the balance of risks to inflation relative to the target in the medium term.
Many investors have called on the Bank to start “normalising” monetary policy to wean borrowers off super-cheap credit as the economy recovers, and to reward savers who have suffered seven years of paltry returns.
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Governor Lee has proven hesitant to cut rates further as household debt continues to snowball, while headline inflation has been inching up in the past few months. Of 18 dealers and analysts polled by Reuters, 15 said they expected it to keep rates on hold, mainly because markets anticipate a U.S Federal Reserve rate hike which would undermine the appeal of high-yielding emerging currencies.