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Big three central banks tone down rate hike talk
The US Federal Reserve, European Central Bank and Bank of England on Tuesday all dampened expectations for aggressive interest rate rises to counter rising inflation, sending global stocks and bonds surging in relief.
- Reuters
- Published: 23:53 June 17, 2008
London: The US Federal Reserve, European Central Bank and Bank of England on Tuesday all dampened expectations for aggressive interest rate rises to counter rising inflation, sending global stocks and bonds surging in relief.
The initial salvo came from senior Fed officials who separately told two international newspapers that the US central bank was unlikely to raise interest rates in the next few months unless the inflation outlook worsens.
The reports, carried in yesterday's editions of the Financial Times and Wall Street Journal, both cited 'Fed officials' and said fin-ancial market speculation that the Fed could hike rates several times this year is probably overdone.
With financial markets betting as recently as Monday on a quarter-point increase in the Fed's key target rate of two per cent by August and another by Oct-ober, the comments helped lift world stocks, drag down US Treasury yields and weaken the dollar.
Doves weigh in
But dollar losses were limited as senior European Central Bank officials delivered similarly dovish comments on the outlook for their interest rates.
Executive Board member Lorenzo Bini Smaghi was quoted as saying that a quarter percentage point rise in the ECB's main interest rate should be enough to bring euro zone inflation back below two per cent.
Yet rate rise expectations were further depressed by the Bank of England yesterday even after reports of UK inflation rising to 3.3 per cent in May - above forecasts and more than a percentage point above the bank's two-per cent inflation target.
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