ECB & BOE Rates

ECB and BOE Rate Decision - February 3, 2022

The Bank of England announced its monetary policy decision this morning and raised the benchmark interest rate by 25bps to 0.50%. It also announced that is had began the process of quantitative tightening. The Monetary Policy Committee (MPC) voted unanimously in favor of the rate hike. The policy statement showed that four members of the MPC voted for a bigger increase in the policy rate, providing a boost to the British pound. The decision was in line with market expectations and marked the first back-to-back rises since 2004. The GBP/USD reacted by advancing above the resistance level of 1.3600.

The European Central Bank, as expected, has kept key interest rates unchanged, despite the record rise in inflation. The central bank’s benchmark refinancing rate remans at 0%, the rate on its marginal lending facility stays at 0.25% and the rate on its deposit facility stays at -0.5%. While the moves were not surprising, the lack of action comes at a time where there has been increased pressure on the ECB to raise rates as inflation has been creeping up month after month, hitting a record of 5.1% in January. ECB President Lagarde will explain the bank’s decision at a press conference later today. The decision was unanimous. The bank also reaffirmed its QE policy guidance from December, that the PEPP will end in March and that in the second quarter the APP will be lifted to EUR 40B per month, then tapered back to EUR 20B per month by Q4. PEPP reinvestments are expected to continue until the end of 2024. EUR/USD came under renewed bearish pressure following the announcement falling to session lows.

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