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Stocks mostly rise as Fed to begin tapering but BoE holds fire

By AFP - Nov 04,2021 - Last updated at Nov 04,2021

LONDON — Global stock markets mostly rose on Thursday, a day after the Federal Reserve said it would start "tapering" its pandemic support programme, but the Bank of England( B0E) opted to keep its gunpowder dry on possible policy moves for now.

After some market players had been betting on an interest rate hike by the BoE, the pound fell sharply against the dollar when the British central bank announced it would be leaving borrowing costs at the current low of 0.1 percent for the time being.

The decision "will come as a surprise to some in markets," said Berenberg economist Kallum Pickering.

But it was "the correct decision," the expert said. "By keeping rates on hold, the BoE will force markets to reconsider the likely path of rates over the coming years."

Stock prices in London continued to rise after the announcement, and the markets in Frankfurt and Paris were similarly in positive territory.

On the other side of the Atlantic, Wall Street opened fractionally lower after reaching record highs the previous day.

Oil rebounded from recent losses as traders awaited a decision by OPEC and other key producers to open up the pumps to rein in runaway energy prices.

Even if BoE governor Andrew Bailey wrongfooted some market players on rates, the central bank said it would "likely be necessary" to have "some modest tightening of monetary policy" to bring down inflation.

Policymakers "judged that... it would be necessary over coming months to increase" the main rate to bring UK annual inflation back down to the central bank's target of 2 per cent, the statement said.

'Own goal'? 

However, CMC Markets analyst Michael Hewson said the decision was "a huge own goal for the central bank, already widely distrusted by the markets due to the unreliable boyfriend era of Mark Carney".

The new BoE chief "had the opportunity to reset the narrative when he took over and restore the central banks credibility, and he's completely bodged it," the expert said.

"The least markets can ask for is a central bank that is disciplined on messaging, and this fiasco has shown the bank's faults when it comes to forward guidance are still there in plain sight."

In the US, the Fed on Wednesday said it would start reducing the monthly pace of quantitative easing stimulus purchases by $10 billion for Treasuries and $5 billion for mortgage-backed securities.

The announcement fuelled another record rally on Wall Street, and bumper gains across Asia.

The US central bank added it would be patient in hiking interest rates as the world's biggest economy continues to recover, insisting once more that surging inflation was transitory.

The announcement brought to an end months of speculation about the Fed's plan for the bond-buying programme, and removed some unease among traders who were concerned that officials were leaving it too late to respond to rocketing inflation.

The move makes the Fed the latest monetary authority -- after central banks in Canada and South Korea -- to begin winding back the measures put in place at the start of the pandemic which have been crucial to the global rebound and an 18-month equity rally to multi-year or record highs.

At the same time, supply bottlenecks and shortages have caused global consumer prices to rise, prompting criticism that the Fed and other central banks have become overly complacent about inflation risks.

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