PREVIEW: BoE April Minutes due at 0930BST/0330CDT
• 9-0 vote to keep the benchmark borrowing rate unchanged
• 7-2 vote to keep the Asset Purchase Facility (APF) on hold, with David Miles and Adam Posen voting for more QE
Today's release of the minutes from the most recent BoE policy meeting will again be watched for hints on whether the policymakers will turn to more asset purchases when the current program expires or instead prioritise combating inflation.
Yet again, the minutes are expected to show that two members of the Committee (David Miles and Adam Posen) voted to raise the Asset Purchase Facility (APF), while the overall majority continues to view that such a move is unwarranted at the moment. Of note, the short end of the Gilt curve is little changed over the past month, while yields on the longer maturities have fallen and the 10y is trading around the 2.1% level on the back of persistent concerns over the peripheral Eurozone and consequent safe haven trade flows. The minutes will likely indicate that the Asset Purchase Facility (APF) is proving to be a valuable tool in containing borrowing costs and that the program may be expanded further.
The committee will also likely note that the evolution of inflation expectation is largely inline with the February Inflation report, however there are substantial risks to the medium term inflation outlook. Anti-inflation rhetoric should prove supportive for GBP, which has outperformed the EUR as market participants diversify their EUR-related holdings amid an intensification of the sovereign debt crisis which is threatening to push Spain into tapping the bailout fund. Furthermore, it is worth noting that yesterday BoE's Posen said that he will rethink his opinion if core inflation does not slow, however one month's data is not sufficient to change his view. In turn, this pressured 2013 Short Sterling contracts and there is a risk of a reversal should the minutes indicate that the overall majority of the Committee are not concerned about inflation and prefer to focus on growth.
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