Whatās Going On Here?The Bank of England (BoE) announced after its meeting on Thursday that it wouldnāt be tweaking its short-term policies, despite the inflation-sized elephant in the room. What Does This Mean?Besides sticking with historic low interest rates, the BoE said it was still planning to buy $1.2 trillion worth of government and corporate bonds by the end of 2021 (tweet this). This, even though inflation rose above the BoEās target of 2% last month, and even though the central bankās expecting it to climb as high as 3% ā half a percentage point higher than it predicted six weeks ago.
The BoEās stubbornness is easy to explain: it argued that the British economy is experiencing a fleeting period of strong economic growth, and that this above-target inflation will normalize when the post-lockdown surge settles down. In fact, the central bank wonāt move a muscle on policy unless it sees irrefutable evidence that inflation is going to hang around. Why Should I Care?For markets: The BoE didnāt give an inch.
Investors hadnāt necessarily expected the BoE to commit to raising interest rates, but they had thought itād at least gesture at raising them sometime soon. Thatās why the pound rose and British government bonds fell ahead of the BoEās announcement: higher rates would make the currency more appealing to savers and international investors, and theyād make future British government bonds more ā and current ones less ā desirable. But when the BoE refused to even contemplate raising rates, both those moves reversed course.
The bigger picture: Britcoin to the moon.
The BoE is also one of the many central banks exploring a digital version of its own currency. A government-backed āBritcoinā could bring a host of benefits: itād be impossible to counterfeit, could help the government spot criminal activity, and would allow for cheap transfers that could boost economic activity. Of course, it could also create all sorts of privacy issues that decentralized cryptocurrencies just donāt haveā¦ | 