UK Rates Stay Unchanged

The Bank of England kept the benchmark interest rate at 0.50%, with record low levels in place since March of 2009. Committee members involved in the voting process on policy remained unchanged in their positions, voting 8 to 1 to maintain policy with only McCafferty insisting on a hike to 0.75%. The BoE’s decision was made easier based on inflation below zero and recent mixed economic data along with a continued drop in oil prices. The strong sterling and weakening commodity prices are reducing the likelihood of inflation rising back to targeted levels over the near-term. A rebound depends on sufficient domestic cost growth being able to balance the drag on prices caused by global disinflation and increases in the value of the Pound. One item expected to improve the economic climate is fiscal spending cuts announced by the Finance Minister that will give a boost to growth next year.

Policymakers at the Swiss National Bank left interest rates on hold at -0.75% in December, marking a record low as the Central Bank works to fight speculative inflows and insulate the domestic economy. The SNB is willing to intervene in the currency market, if necessary, to weaken the “significantly overvalued” Swiss Franc according to officials. The Central Bank is currently targeting a soft EURCHF peg between 1.0500 and 1.1000 in an effort to keep the economy competitive with negative rates helping to keep the Franc unattractive for haven flows. Although growth has been anemic, the SNB sees growth in the pipeline with expectations of 1.50% expansion next year. Inflation is also expected to fall -0.50% next year before beginning its ascent in 2017. The Franc managed to appreciate modestly following the decision after disappointing analysts expecting increased action from the Central Bank.