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The Bank of England follows the Fed's footsteps and keeps monetary policy unchanged

18 Mar 2021 03:51 PM

The Bank of England kept interest rates unchanged at its meeting today at 0.10%, following in the footsteps of the US Fed. The BoE was pessimistic about a possible tightening of monetary policy in the future and it also kept the asset purchase program unchanged at 895 billion pounds.

With the high bond yields and the expectations that inflation will rise, the possibility of central banks tightening their monetary policy is closer than the markets expected. According to the Monetary Policy Committee, there is no intention to change its current policy until there is clear evidence of significant progress in eliminating excess production capacity, and achieving the inflation target of 2% in a sustainable manner. The committee expects inflation to return to its target in the spring as a result of the rise in energy prices.

Since the Covid-19 outbreak, the Bank of England has cut interest rates twice from 0.75%, and introduced an unprecedented asset purchases program, in order to stimulate economic recovery. Market forecasts have increased in the recent period about the bank's introduction of negative interest rates, but the Bank of England said that six months are needed to prepare for a negative price environment.

The British economy suffered from the largest contraction in more than 300 years during 2020, and the government in the United Kingdom made promises of more financial support of about 407 billion pounds in the short term.

So far, more than 24 million people have received at least one dose of the vaccine, and great progress is being made in the distribution of vaccines, however BoE forecasts for economic recovery are still unclear.

The pound fell against the dollar following the central bank’s decision, which is a sign that it is keeping its monetary policy unchanged and that it is in no hurry to tighten it. the pair is currently trading around 1.3920, and since the beginning of March, the pound sterling has been confined to trading between 1.38-1.40, and a breach of any of those levels will drive a noticeable move for the pound in either direction.

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