News

Policy rate unchanged for the time being

Summary

  • Our forecast: unchanged policy rate on 16 May
  • Outlook broadly unchanged since March, when the MPC unanimously held the policy rate unchanged
  • Unchanged policy rate in line with forward guidance and recent economic developments
  • We forecast an unchanged rate through 2018, followed by a 25-point reduction in 2019 if inflation remains close to target

Policy rate unchanged for the time being

We expect the Central Bank (CBI) Monetary Policy Committee (MPC) to decide to hold the policy rate unchanged on 16 May, the next interest rateannouncement date. The near-term economic and inflation outlook is broadly unchanged year-to-date. In its most recent decisions, the MPC has been unanimous in holding the policy rate unchanged, and there are few signs that developments in recent weeks will put a dent in that consensus.

The forward guidance from the Committee will probably be neutral, as it has been recently. Headline inflation has fallen marginally since the MPC’s last decision, while inflation expectations and the breakeven inflation rate in the bond market has inched upwards since the beginning of the year. The ISK has been stable, and indicators imply that tensions in the labour market and the economy as a whole are receding somewhat. The real policy rate has fallen slightly in the recent past, but the interest rate differential with abroad is still sizeable.

ISB Research policy rate forecast for May-18

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