Bank of England likely to keep rates steady, downplay risks of rate-cutting ahead of US Fed: Mohamed El-Erian

Mohamed El-Erian posted that the bank will take a more relaxed attitude on inflation's trajectory.

The Bank of England is likely to keep policy rates steady at 5.25 percent, to start a moderate cutting cycle from August 1 and to downplay the risks associated with cutting rates ahead of the US Federal Reserve, according to Mohamed A El-Erian.

UK's central bank is expected to make its policy rate announcement at noon (London time) on May 9.

The President of Queens College, the University of Cambridge, and chief economic advisor at Allianz, tweeted that this will announce a shift in the central bank's policy in favour of economic growth.

Their announcement will come with a 7-2 or 6-3 split in voting, he added.

Also read: Bank of England should tailgate the ECB, not the Fed

They might take this stance despite the country's inflation figures coming in at 3.2 percent which was a bit higher than consensus forecasts and higher than BoE's target of 2 percent.

Erian posted that the bank will take a more relaxed attitude on inflation's trajectory.

He posted, "No immediate interest rate cut,"

"Openness to initiate a modest interest rate cutting cycle in future MPC meetings, most likely starting on 1st August and possibly on 20th June,"

"Somewhat more relaxed about how much inflation will head back up after falling to a 2%’ish level this quarter".

While this would mean that BoE's rate-cutting cycle may come ahead of the US Federal Reserve, BoE is likely to downplay the risks arising out of that, he wrote.

Market watchers have been predicting that European central banks will diverge from the Fed's policy stance and experts have been saying that the BoE should follow European Central Bank (ECB) and not the Fed.

Also read: UK inflation 'moving in right direction' for rate cuts: Bank of England

Erian then gave a brief pointer on what this policy stance would mean.

He wrote, "Should this materialize, and given what is currently reflected in market pricing, it would translate into somewhat lower mortgage rates for households and loan rates for businesses."

He added, "What this should also do, though the politics is complicated, is shift the policy focus to the need for additional government measures to boost productivity and growth."