18 March 2022
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BOE hiked rates at March meeting

By Khatija Haque

  • The Bank of England’s MPC raised the base rate by 25bp to 0.75% as expected yesterday. The MPC now expects inflation to reach around 8% in April, up from 7.25% previously on the back of higher commodity prices.  Overall, however, the MPC was more dovish than appeared the case in February, taking the view that higher inflation would squeeze household incomes, leaving households with less to spend on non-essential items and curbing demand. None of the MPC members voted to raise rates by 50bp and one MPC member voted for no change to the base rate at all this month. The statement also indicated that further tightening in monetary policy “may be” appropriate rather than “is likely” to be appropriate as was the case last month. We still expect another two rate hikes from the BoE this year, well below the four rate hikes currently being priced in by markets.
  • Eurozone inflation came in higher than expected in February, rising 5.9% y/y against a preliminary estimate of 5.8%. The main driver was higher energy prices, and core inflation was confirmed at 2.7%. At a conference in Germany yesterday, both ECB president Christine Lagarde and chief economist Philip Lane indicated that the ECB could raise rates in Q4 2022 (as we expect they will). However, the move could be derailed by sharply slowing growth or a deterioration in the outlook on the back of the conflict in Ukraine.
  • US data was largely better than expected overnight.  Housing starts rose by 6.8% m/m in February and building permits declined by less than had been forecast. Initial jobless claims for the week to 12 March fell to 214k and continuing claims (5 March) declined by more than expected as well. Industrial production rose 0.5% m/m in February with factory output up the most in four months. Capacity utilization rose to 77.6% in February from 77.3% in January and while this was slightly lower than the median estimate, it is now stands higher than it was before the pandemic.
  • Turkey’s central bank kept the 1-week repo rate on hold at 14% as expected yesterday, with the MPC statement indicating that higher inflation was largely due to supply side issues including higher energy, food and agricultural prices and supply disruptions, and that these price pressures would ease. The forecast in the February meeting statement that the current account would move into surplus was not included in the March statement.  Separate data showed gross FX reserves declined by USD 3bn to USD 65.3bn in the week to 11 March.
  • Hotel occupancy in Dubai rose to 84.5% in February from 70.7 in January as the impact of Omicron waned. Revenue per available room rose to USD 180, up 140% y/y. 

Today’s key economic data releases and events

18:00 US existing home sales (Feb) forecast 6.1mn

18:00 US leading index (Feb) forecast 0.3%

Fixed Income

  • Bloomberg reports that USD 117mn in interest payments due on Russia’s dollar bonds this week have been paid to Citigroup, although they have yet to be received by bond holders.
  • A more dovish tone from the Bank of England’s MPC yesterday, where they played up the threat posed by inflation, saw yields on UK gilts drop by the end of day. Yield on the 2-year dropped 11bps to 1.298%, the lowest level since the previous Monday and the biggest move in over a week, while the 10-year dropped 7bps to 1.565%, a low for the week.
  • In the US, the 2-year yield fell 2bps to 1.9138%, while the 10-year fell just 1bps to 2.1706%.


  • The dollar index dropped for the second day in a row yesterday, falling -0.7% to 97.974, the lowest level since last Wednesday. The losses against its pairs was fairly broad based, although GBP closed flat at 1.3149 as the currency trimmed earlier gains after the BOE’s statement in which it warned of mounting economic risks. The Euro gained 0.5% against the greenback to 1.1091.
  • Commodity currencies performed strongly yesterday in line with the renewed rise in global energy and metals prices. CAD added 0.4%, the NZD 0.6% and AUD 1.2%.


  • Global equity markets had a third strong session in a row yesterday, bolstered by some positive news regarding Chinese support to stocks, and Russia’s debt payments, which seemed to override less positive developments in the conflict and a renewed spike in oil prices. The S&P 500 and the Dow Jones added 1.2% while the NASDAQ closed up 1.3%.
  • Things were more mixed in Europe where the DAX dropped -0.4% but the CAC (0.4%) and the FTSE 100 (1.3%) both closed higher. The FTSE’s gains were driven by mining and energy stocks as commodity prices headed higher once more, while travel stocks slumped.
  • Within the region, the ADX added 0.2%, the Tadawul 0.9% and the DFM 1.1%.


  • Oil prices ticked higher again yesterday as the prospect of a speedy resolution to the war in Ukraine appeared to dim. Brent futures snapped three days of declines to surge 8.8% back above the 100 mark to USD 106.6/b, and WTI climbed 8.4% to USD 103.0/b. Both are up around 2.5% so far in trading today.
  • There was some positive news for supply as Libya came out in support for a more rapid increase in production by OPEC, something that has been resisted so far despite overtures from Western leaders.

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Written By

Khatija Haque Head of Research & Chief Economist

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