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Bank of England, European Central Bank Hold Rates

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The Bank of England and the European Central Bank both announced their interest rate decisions this morning, with the Bank of England holding rates and the European Central Bank doing the same. The Banks were both not expected to act at these meetings and met expectations.

The Bank of England decided to keep its benchmark interest rate flat at 0.5 percent and kept its asset purchase program constant at 375 billion pounds (~$600 billion). The Bank did not release a post-meeting communiqué but its inflation and output projections will be released on Wednesday, November 14 in its Inflation Report. Also, the minutes of the meeting will be released November 21.

The European Central Bank also decided to leave rates unchanged, as expected. Some economists had been hinting that a rate cut was coming but swaps markets were not pricing in a large probability of a cut heading into the release. In the released communiqué, the Bank said that it kept the main refinancing rate at 0.75 percent, the marginal lending rate at 1.5 percent, and the deposit rate at 0.0 percent.

Markets took the news in stride as the results were widely expected. The British pound did gain slightly after the BoE's release as some traders betting on a rate cut had to cover shorts, however moves were capped just below 1.60 in the GBP/USD cross. The euro remained lower against the dollar after the ECB announcement, trading just below 1.2750, where it has traded for the past few hours. Gold futures rose slightly to $1,718.20 or a gain of 0.25 percent.

To note, European Central Bank President Mario Draghi is set to hold his post-meeting press conference at 8:30 am eastern. It is at these press conferences that he has previously launched non-traditional policies such as the OMT. This time, Draghi could comment on the state of the program and potentially give an update on the status of Spain's decision on a bailout or the recent reports over Spanish banks potentially facing a 17 billion euro collateral call.

The lack of action from the two central banks follows weak economic data over the past few weeks including manufacturing and service PMI's. However, bankers may be thinking that recent rate cuts and other policy measures such as the BoE's Financing for Lending Scheme may still need time to see the full effects of those policies.

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