South Korea leaves interest rate at record low

Regarding the latest decision on interest rates, senior economist at Julius Baer David Meier said: “At yesterday’s December meeting the BoE’s Monetary Policy Committee (MPC) was not in the mood to rattle markets out of their comfort zone before the holiday season”.

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “Cash savers are now facing their eighth year of miserable interest rates with only the smallest glimmer of light at the end of the tunnel”.

Traders are betting officials will keep the Bank Rate unchanged through 2016, according to forward contracts based on the sterling overnight index average, or Sonia. The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 1.87 per cent, after sliding to 1.82 per cent. The 2 per cent security due in September 2025 rose 0.09, or 90 pence per £1000 face amount, to 101.19.

The most recent United Kingdom inflation reading revealed that Y/Y CPI (-0.1%) to remain in deflationary territory and with this in mind it is highly unlikely that the BoE will chose to hike rates at this meeting. 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.

When the Bank first made that short-term inflation forecast last month, it prompted investors to push back into late 2016 and 2017 their expectations of when the BoE was likely to finally start raising rates. “There’s also the whole decision of how to communicate not only any decision that we make – whether to raise rates or not — but also having to communicate, what does that mean for policy in the future?”, Williams said.

Ian McCafferty, one of four external members of the MPC, was the only one to vote for a rate rise.

He said the risks to domestic cost growth to the upside, and were sufficient to justify an immediate increase in Bank rate.

“To be sure, moving now appears more about getting the first hike out of the way and changing the conversation away from liftoff to the shallow path of hikes expected thereafter than it is about the current state of the economy demanding tighter policy”, Ellen Zentner, economist at Morgan Stanley, wrote in a note.

Inflation may turn positive in November, officials said, however “core inflation remains subdued”, the the minutes showed. For the United Kingdom, the MPC again sought to rebuff a market view that it would look to the US Fed for direction.

The bank lowered its reserve requirements to 2.5 percent from 4 percent.