Finncil Mrkets nd Monetry Policy Assignment Example | Topics and Well Written Essays - 1500 words

Finncil Mrkets nd Monetry Policy - Assignment Example "In that sense I think the outlook is 'bimodal' - in terms of there being two main stories. The orthodox story, to which I gave most weight in my November vote, required a small tightening," he said. On the significance of the 15 per cent annual rise in broad money supply, Mr Tucker said it was important to look at what was contributing to the growth: "One has to get one's hands dirty in analysing the money numbers." (Daneshkhu, 2006) The rection of the finncil community to the increse of interest rtes by the Bnk of Englnd showed tht they believed tht the consumer price index would remin bove trget if rtes were left unchnged t 4.75 per cent. Growth ws firm nd hd left smll mrgin of spre cpcity, they rgued, while the risks from slowing US economy hd diminished. The still buoynt housing mrket might spur consumer spending, though it ws ccepted tht household indebtedness could ct s restrint. In ddition, the mjority remined concerned tht the upcoming New Yer py round my pose risk s workers noted tht the retil price index ws t n eight yer pek of 3.7 per cent. "There ws risk tht employees would seek to negotite higher wges in order to resist the erosion of their purchsing power ccording to tht index," sid the Bnk. (Daneshkhu, 2006) The mjorityThe mjority gin reiterted their concerns tht the fst pce of brod money growth could further fuel sset price infltion nd tht tht if infltion continued bove trget for much longer, tht might come to be reflected in infltion expecttions. ll these fctors posed upside risks to infltion. In contrst, one member, presumed to be Ms Lomx, "plced more weight on the downside risks to demnd nd infltion." (Fifield, 2006) The member lso rgued tht the ugust rte rise hd not yet fully been fully felt nd tht the Bnk ws underestimting the risks to demnd of slowing US economy. Rising unemployment ws likely to leve wge growth muted. nother member, believed to be Dvid Blnch flower, rgued tht the "current spike in infltion ws minly relted to lrge gs nd electricity price increses, which were still more thn offsetting the recent fllbck in petrol prices." Infltion would fll shrply next yer s their impct dissipted. Richrd McGuire t RBC Cpitl Mrkets sid the split vote might be interpreted by the mrket s reducing the momentum for nother increse in the cost of borrowing. "While it remins close cll, we continue to see the blnce of probbilities slnted towrd the Bnk of Englnd remining t the sidelines in Februry, view which hs received some support from tody's minutes." (Fifield, 2006) b) On wht grounds hs this interest rte increse hs been justifiedRises in interest rtes re justified by the forecsting tht Bnk of Englnd hs mde in reference to the growth during the next yer nd infltion tht will remin t or bove its trget over the next two yers. Addressing the Financial Markets Association in London, Paul Tucker said he had voted for last month's quarter-point increase in the Bank's main rate to 5 per cent. "With headline inflation tangibly above target in the run-up to the main, new year wage bargaining season and with the market clearly expecting that policy would be tightened, a small increase in bank rate was,