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6 Feb 2013
Forex Flash: BoE's Carney testimony to overshadow BoE meeting – TD Securities
TD Securities analysts expect BoE Governor Mark Carney’s testimony to highlight Thursday’s UK events, likely to focus less on nominal GDP targeting that has been the market focus and more on the broader guidance that his December speech actually emphasized. “The BoE should leave QE unchanged, though an increase or tweak to FLS is not inconceivable”, wrote analyst Richard Kelly, adding that “the BoE is likely to announce a reinvestment of the £6.1bn maturing in March to keep the APF unchanged, but the BoE could push gilt yields slightly lower at no cost to them by simply committing to reinvest maturing bonds in the future”.
Kelly believes the biggest shock from the BoE would be an increase of asset purchases by £25-50bn, but with the economy contracting in Q4 and Q1 data tracking weak, “this can hardly be considered unwarranted”. Also, “MPC members’ comments suggest that most still have an easing bias, but many think QE may be less effective at this time”.
“The wildcard, while the BoE historically has not liked to pre-commit, is they could appear dovish in the market while adding nothing new and announce a plan to reinvest all maturing bonds over some period of time (12 months, until further note)”, Kelly noted, believing the market would take this more-than-expected certainty of demand for gilts and push yields lower by a few basis points across the curve. “They may not want to commit to a policy that extends beyond King’s tenure or ties their hand if inflation were to rise, though the latter could easily be assuaged as the MPC would not be committing to leaving rates unchanged should inflation rise”, he added.
Kelly believes the biggest shock from the BoE would be an increase of asset purchases by £25-50bn, but with the economy contracting in Q4 and Q1 data tracking weak, “this can hardly be considered unwarranted”. Also, “MPC members’ comments suggest that most still have an easing bias, but many think QE may be less effective at this time”.
“The wildcard, while the BoE historically has not liked to pre-commit, is they could appear dovish in the market while adding nothing new and announce a plan to reinvest all maturing bonds over some period of time (12 months, until further note)”, Kelly noted, believing the market would take this more-than-expected certainty of demand for gilts and push yields lower by a few basis points across the curve. “They may not want to commit to a policy that extends beyond King’s tenure or ties their hand if inflation were to rise, though the latter could easily be assuaged as the MPC would not be committing to leaving rates unchanged should inflation rise”, he added.