BOE: Next week’s 25 basis points not fully discounted in interest rate markets — Rabobank

Next Thursday, the Bank of England (BoE) will announce its decision on monetary policy. A 25 basis point rate hike is expected to 4.25%. Rabobank analysts also see a quarter-point rate hike and warn that such a scenario is not fully priced in in the interest market, “indicating that the possibility of a hold has increased following the collapse of SVB.”

Fear, uncertainty and doubts

“The financial crisis of 2007-2008 taught us that even small failures can lead to major problems. Although SVB’s poor liquidity risk management was the underlying cause of its downfall, the passage of a ‘lower interest rate regime during longer’ to ‘higher, possibly longer’ acted as a trigger. This raises the question of whether other financial institutions could eventually face a similar situation, fueling the infamous trio of fear, uncertainty and doubt.”

“Therefore, we would expect the cycle of increases to continue at a more moderate pace of 25bp at next week’s meeting. This would lift the Bank rate to 4.25%. Given that external members Tenreyro and Dhingra will surely not vote for In favor of a raise, five of the seven remaining policymakers would have to vote for such a raise. In fact, we wouldn’t even be surprised to see a three-way split, with Tenreyro and/or Dhingra even voting for a cut.”