The interest rate conundrum – or should that be farce – continues apace.
Following the publication in July of the latest Bank of England MPC meeting minutes, the markets immediately pounced on the following paragraph:
"For a number of members, the balance of risks to medium term inflation relative to the 2% target was becoming more skewed to the upside at the current level of Bank Rate. For these members, the uncertainty caused by recent developments in Greece was a very material factor in their decisions: absent that uncertainty, the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced."
In other words, if it wasn’t for Greece, there is a chance the Monetary Policy Committee would be raising rates, if only by a fraction, in the not too distant future – very possibly early next year.
Why? Because it reckons inflation is going to rise pretty sharply in the next six to 12 months — due to oil prices, consumer spending, wage growth and what not.
This, of course, is typical Bank of England gobbledegook and doesn’t really tell us much at all. After all, the last time I looked, we’re not dreaming it — Greece is happening.
In other words, it’s absurd to ponder on what might happen were it not. ‘Absent that uncertainty’ indeed.
And given that Greece is a drama that is unlikely to resolve at any time soon – and will arguably only get worse – by the logic of the Bank of England it may well be 2020 before there is an interest rate rise.
With the latest Greek bail-out merely papering over the cracks – as one wit put it, they are arguably attempting to put out the fire with petrol – there is going to be a lot more volatility surrounding the Eurozone in the months and years ahead.
With this in mind, if an interest rate rise is dependent on events there sorting themselves out, we could be in for quite a wait.
For a number of years now, it feels, we are intermittently told that rates will be rising ‘towards the end of such and such a year’, or in ‘early 2000 and something’.
If this incessant and idle conjecture constitutes forward guidance then we could do worse than turning the guidance off. Rates will rise when rates rise, and not a moment before.
Attributed to Jonathan Samuels of Dragonfly Property Finance
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