Image source: Shao-Chun Wang © 123RF.com
The Monetary Policy Committee (MPC) of the Bank of England met yesterday for its regular monetary policy gathering, on which the Committee unanimously decided to maintain the Official Bank Rate unchanged at 0.10 per cent.
This decision was completely inlined with the consensus market expectations, which were not projecting any changes to the near-negative interest rate in the UK. All nine members of the Committee voted in favour of keeping the Bank's policy on the same course that was set during its previous meeting in March.
Yet, there were some disagreements amongst the Committee members concerning the appropriate size of the Bank's asset-purchasing programs, which is revealed in the minutes from the meeting.
Two members were of the opinions that the situation has changed since the 26th of March, and the new economic and financial conditions necessitate a more accommodative monetary policy.
"The Committee voted by a majority of 7-2 for the Bank of England to continue with the programme of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of these purchases to £645 billion. Two members preferred to increase the target for the stock of asset purchases by an additional £100 billion at this meeting."
Similarly to the example set by the Reserve Bank of Australia earlier this week, the Bank of England also outlined a broad model delineating the likely future development of the situation.
"The illustrative scenario incorporates a very sharp fall in UK GDP in 2020 H1 and a substantial increase in unemployment in addition to those workers who are furloughed currently. Given the assumed path for the relaxation of social distancing measures, the fall in GDP should be temporary, and activity should pick up relatively rapidly. Nonetheless, because a degree of precautionary behaviour by households and businesses is assumed to persist, the economy takes some time to recover towards its previous path."
While crude and highly conditional, the fact that more and more central banks are now compiling such theoretical models means that in the eyes of the policymakers, the general market turmoil might now be over.
If the impact of the initial market shock is truly mitigated by the timely fiscal and monetary actions of policymakers and governments, this would mean that the primary economic focus globally would now transition from containment of the fallout to accommodating a subsequent recovery.
Meanwhile, the actions implemented by the MPC are likely to support the reeling pound, which tumbled against the US dollar to the minor support level at 1.22780 once again but has since then partially recovered.
The GBPUSD appears to be currently in the process of forming a new Accumulation range, which could be followed by a new Markup if the underlying bullish momentum continues to appreciate in the following days.
GBPUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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