Interest Rates Can’t Increase, Could Pound Sterling Go Below Rp. 19,000?

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The British central bank (Bank of England / BoE) made a surprise last week that made the pound sterling exchange rate plummet against the United States (US) dollar and the rupiah.

Until yesterday’s trading, Wednesday (11/10) the pound sterling still has not been able to rise.

On Thursday (4/11) the BoE surprisingly kept its benchmark interest rate at 0.1%, even though the market expected it to be raised to 0.25%.

As a result, the pound sterling fell by 1.36% against the US dollar and 1.1% against the rupiah that day.

The decline in the pound sterling continued to touch Rp 19,170/US$ at the beginning of last week, before successfully rebounding.

In yesterday’s trading, at 14:39 WIB, the pound sterling was in the range of Rp 19,294/GBP, weakened by less than 1%. While against the US dollar at US $ 1.3546, slightly weakened 0.06%.

Inflation in the UK in August to 3.2% year-on-year (YoY) which is the highest level since records began in 1997.

In September, inflation slowed slightly to 3.1% YoY but remained well above the BoE target by 2%.

Two weeks before the announcement of monetary policy, the Governor of the BoE, Andrew Bailey, also gave a signal to raise interest rates.

“Monetary policy can’t solve the supply-side problem (which triggers inflation), but the central bank must act if we see risks, particularly inflation in the medium term as well as expectations,” Bailey said, during an online panel discussion, Sunday (17/10).

“And that’s why the Bank of England signaled a rate hike, and this is another signal. But of course, we will act at the monetary policy meeting,” he added.

However, in reality, in the monetary policy meeting last week, only 2 out of 9 members of the monetary policymakers (MPC) chose to raise interest rates, the rest chose to keep it.

“Members of the committee assessed that, based on the available data, especially the workforce, which is broadly in line with the projections of the November monetary policy report.

In the coming months it is necessary to raise interest rates so that inflation returns to the target and continues at 2%,” wrote the statement. MPC’s conclusion in the monetary policy meeting last Thursday.

The MPC’s statement ruled out the possibility of a rate hike in December, which was said to be a very dovish stance, causing the pound to sink.

“What took us by surprise from last week’s BoE monetary policy announcement was its very dovish attitude. They not only kept interest rates but were dovish about the upside opportunities going forward,” Bank of America analysts wrote in a note quoted by Reuters on Tuesday ( 9/11).

However, many analysts still see the BoE will raise interest rates in December.

“We expect interest rates to be raised in December when the MPC looks at the current state of the labor market,” said Luke Bartholomew, senior economist at Abdrn.

However, if in December the BoE still maintains interest rates, it is not impossible that the pound will decline to below Rp. 19,000/GBP. The last time it was below that level was on January 11.

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