Central bank meetings to set stage for parting of ways

Sun Aug 3, 2014 5:05am EDT
 
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By Mike Peacock

LONDON (Reuters) - After the Federal Reserve maintained its path towards raising U.S. interest rates next year, other major central banks will jostle for space on a crowded stage this week.

The European Central Bank, Bank of Japan, Bank of England and the central banks of India and Australia all hold meetings. While imminent action is unlikely, the time when policy settings start pointing in different directions is nearing.

U.S. growth rebounded in the second quarter and the Fed upgraded its assessment of the economy last week. It is on course to stop creating money in October but the expectation is that there will be no interest rate rise before mid-2015.

That puts the Bank of England in pole position to be the first major central bank to push rates up from their record low 0.5 percent, perhaps before the year is out.

Although the UK economy is expanding at an annualized clip in excess of 3 percent and unemployment is tumbling, the absence of wage pressure means there is no immediate reason to act.

The consensus is that rates will not rise until early 2015 but polling by Reuters last week found economists expect a first voice or two on the nine-strong Monetary Policy Committee to call for a rate rise this week.

The last time the MPC was considering raising rates was in 2006. In May of that year, one MPC member voted for a hike and it took just three months before a majority followed suit.

"We expect the jobless rate will continue to fall rapidly, with the BoE hiking earlier and further than markets project," said Michael Saunders, chief UK economist at Citi.   Continued...

 
Pedestrians walk past the Bank of England in the City of London May 15, 2014.   REUTERS/Luke MacGregor