(Kitco News) - The gold market is seeing some selling pressure in global currency markets as it falls to session lows against the British pound after the Bank of England said it would leave interest rates unchanged.
In an expected move Thursday, the central bank said it would leave the Bank Rate unchanged at 5.25%. The announcement is also In line with other major central banks around the world, the BoE said that it is in no hurry to ease interest rates even as inflation pressures continue to ease.
“In the MPC’s latest most likely, or modal, projection conditioned on the lower market-implied path for Bank Rate, CPI inflation is around 2¾% by the end of this year. It then remains above target over nearly all of the remainder of the forecast period. This reflects the persistence of domestic inflationary pressures, despite an increasing degree of slack in the economy. CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years,” the monetary policy statement said.
“It now judges that the risks from domestic price and wage pressures are more evenly balanced, meaning that, unlike in previous forecasts, there is no difference between the MPC’s modal and mean projections at the two and three-year horizons,” the statement added.
While inflation risks have waned in recent months, the central bank also noted that it hasn’t disappeared, which is why it expects to maintain a restrictive monetary policy for the foreseeable future.
“monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates,” the statement said.
Although gold is seeing some selling pressure against the pound, it continues to hold initial support above GBP1,600 an ounce. In the spot market, gold prices last traded at GBP1,603.44 an ounce, down 0.31% on the day.
David Morrison, Senior Market Analyst at Trade Nation said the tone of the BoE’s statement could suggest that investors looking easing anytime soon could be disappointed.
“If the MPC is preparing to cut (and there are forecasts that this could be in May) then we should expect a significant shift here. In fact, of the nine members, six have again voted for ‘no change’, two voted for another hike, while one voted for a cut now. As far as the dovish cause is concerned, it would have helped if there were no votes on the MPC for a rate hike. Sterling was lower across the board this morning but rallied after the announcement,” he said in a note.
Nigel Green, CEO and Founder of deVere Group, provided a bleak assessment of the BoE’s monetary policy, saying that it continues to make a significant policy mistake.
“The Bank of England is continuing to fail households and businesses across the UK by maintaining rates,” Green said in a note. “The primary role of the MPC is to control inflation. It failed with their inaction at the start, passively standing by for too long when prices were already starting to surge. It’s continuing to fail now with adherence to a restrictive monetary policy which is exacerbating the challenges faced by firms and households.
