The Bank of England (BOE) left its key interest rate unchanged at a record low of 0.5 per cent, as the British economy continues to recover and inflation remains subdued. The BOE has maintained interest rates at these levels since March 2009. The bank also left unchanged its monetary stimulus programme of holding £375 billion in government bonds that it has purchased over the past five years.
According to analysts, the country is not expected to change its interest rates until next year, at the earliest.
During the fourth quarter of 2013, the British economy grew by 0.7 per cent, outpacing growth rates in most other European countries.
In the meantime, in its Global Financial Stability Report, the International Monetary Fund (IMF) has cautioned that investors are becoming increasingly reliant on very low interest rates, with many becoming so indebted they will face serious problems when borrowing costs start to rise.
The IMF said that the amount of money spent on leveraged loans now exceeds the levels seen in 2007, just before the financial crisis began. The fund said that financial markets may struggle when the Federal Reserve, the Bank of England and other central banks start to raise interest rates.
Finally, inflation expectation in the euro area are notching up as investors bet that the near-term policies of the European Central Bank (ECB) will inflate prices.
Last month, consumer prices in the euro area rose at their slowest rate since 2009. On the other hand, a measure of inflation expectations based on German bonds was 16 basis points above an almost two-year low set in February.
ECB president Mario Draghi said last week that the rate-setting governing council is “unanimous” in exploring tools, including quantitative easing. Inflation expectations are used by the ECB to gain an insight into the private sector’s assessment of the outlook for future inflation and to evaluate perceptions about the credibility of monetary policy.
This article was compiled by Bank of Valletta for general information purposes only.