Friday, February 11, 2011

Interest rates kept same despite of rising inflation

Interest rates kept same despite of rising inflationThe monetary committee of the Bank of England decided to keep the interest rates at 0.5% which is a 315 year low notwithstanding the rising inflation which drew stern criticism from all quarters. The bank also decided to go on with its program of quantitative erasing, which is nothing but injecting money directly into the economy to speed up the recovery process. The current amount stands roughly at 200 billion pounds.

The decision by the Bank came even though there were great pressures that demanded the rise of the interest rates to curb the growing inflation. The bank's decision instead coincided with the mixed news from the real economy. Weaker manufacturing output was reported by the Office for National statistics for the month of December.

The inflation report of the Bank which due on the next Wednesday it is expected that the inflation forecast will be raised once again. The announcement of the inflation by the ONS for the month of January is expected to be at 4.5n percent and this in all likelihood will trigger yet another letter to the Chancellor from the incumbent Governor, Mr. Mervyn King. The inflation is likely to be one percentage point clear of the targeted 2 percent for the year.

The last meeting that was conducted in January saw the committee getting divided in its opinion bout the interest rates. The Two MPC member voted in favor of increasing the rates. The newest member joining the Hawk, Mr. Martin Weale argued for a 0.25 %point rise of the rates. Adam Posen another member of the committee voted for further relaxation in the policy and argued for rise in the quantitative erasing program. The interest rates were finally kept the same that was there since the month of March in 2009 as the majority voted for it while only two was against it.

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