(Bloomberg) - The Bank of England’s arch-hawk may be willing to kick off a series of interest rate hikes with a bigger-move than markets were assuming.
In comments to the Telegraph this weekend, policy maker Michael Saunders implied that he’s likely to vote for a 25-basis-point hike, rather than the 15 that was previously assumed, according to analysts at the Royal Bank of Canada.
That’s because at the end of last week, investors had priced in around 13.5 basis points of hikes for December, while Saunders said that a move was “half-priced” in for that month. Markets reacted on Monday by briefly betting on a quarter-point move in the final meeting of the year.
“I think that the comments from Saunders that December is ‘half priced’ have an impact on the market in the sense that the general assumption was always that the first hike is by 15 basis points,” said Peter Schaffrik, global macro strategist at the Royal Bank of Canada. “Saunders seems to suggest that there could be an even steeper hike.”
The BOE, which has traditionally moved in multiples of 25-basis-points, broke that habit at the height of the coranavirus crisis, when they cut the Bank rate by 15 basis points to a record-low 0.1%.
That led to speculation their first move higher would be of the same magnitude, although no official has publicly confirmed such strategy.
By David Goodman and Libby Cherry
