Ramsden Sinks Bets for a 50bp Interest Rate Hike at Bank of England in March

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The Bank of England now looks unlikely to raise interest rates by 50 basis points at its March meeting with Monetary Policy Committee (MPC) member Dave Ramsden hinting he is now inclined to vote for a 25 bp rise.

Financial markets are currently positioned for another rate hike on March 17, but there remains some market-relevant debate as to the scale of the hike.

Ramsden said he voted for a 50 bp vote in February but is now inclined to lean on a 25 bp hike in March.

50 basis points would be considered a 'hawkish' outcome and would therefore prove more supportive of Sterling exchange rates than a 25 basis point which could now in fact be considered a 'dovish' outcome given the hefty expectations already adopted by the market.

"Personally I felt that the 0.5pp increase in Bank Rate would have been warranted in February, in line with a watchful and responsive approach to monetary policy," he said in a speech to the NFU. "I have been voting for some front-loaded tightening in monetary policy since last September."

"Looking ahead, like the rest of the Committee I judge that if the economy develops broadly in line with the February MPR forecast, some further modest tightening in monetary policy is likely to be appropriate in the coming months," he adds.

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Economists have interpreted this commitment to "modest tightening" as implying he is now more likely to vote for a 25 basis point hike.

"Ramsden eased back slightly on his recent hawkish stance," says a note from TD Securities' global strategy team. "He favours a 25bps hike in March rather than 50bps."

"He's one more vote in the 25bps camp (taking them to potentially 6 votes), and makes the odds of a 50bps hike next meeting even more remote," adds TD Securities.

Foreign exchange markets have priced in over a 125 basis points of hikes for the reminder of the year meaning any pushback against these expectations could result in a weaker Pound.

Indeed, Ramsden reinforced the MPC's view that overall market pricing of Bank Rate hikes was too aggressive and would push inflation below target over the medium-term if pursued.

"Market rates have risen significantly more since we published that forecast, and now have Bank Rate peaking at almost 2%," he says.

Ramsden explains that if the Bank Rate were to respect this expectation - all else equal - inflation would fall below the 2% target within two years and end the forecast at just 1.4%.

He says there are therefore "also risks from tightening monetary policy too much".

Ramsden mentioned the crisis on Ukraine's borders and said the MPC should "remain humble about the possibility that things might turn out differently."

The Bank conventionally assumes wholesale energy prices will stay constant beyond the first six months, but given the situation regarding Russia and Ukraine, "the uncertainty around this assumption is very high at the moment and it is quite possible that they could fall back significantly or even rise further."

In all, Ramsden's comments will go some way in deflating the recent build up in rate hike expectations which, would be expected to pressure the Pound.