Il termometro dei mercati finanziari (21 settembre 2018)
a cura di Emilio Barucci e Daniele Marazzina

Termometro

Set 22 2018
Il termometro dei mercati finanziari (21 settembre 2018) a cura di Emilio Barucci e Daniele Marazzina

L’iniziativa di Finriskalert.it “Il termometro dei mercati finanziari” vuole presentare un indicatore settimanale sul grado di turbolenza/tensione dei mercati finanziari, con particolare attenzione all’Italia.

Significato degli indicatori

  • Rendimento borsa italiana: rendimento settimanale dell’indice della borsa italiana FTSEMIB;
  • Volatilità implicita borsa italiana: volatilità implicita calcolata considerando le opzioni at-the-money sul FTSEMIB a 3 mesi;
  • Future borsa italiana: valore del future sul FTSEMIB;
  • CDS principali banche 10Ysub: CDS medio delle obbligazioni subordinate a 10 anni delle principali banche italiane (Unicredit, Intesa San Paolo, MPS, Banco BPM);
  • Tasso di interesse ITA 2Y: tasso di interesse costruito sulla curva dei BTP con scadenza a due anni;
  • Spread ITA 10Y/2Y : differenza del tasso di interesse dei BTP a 10 anni e a 2 anni;
  • Rendimento borsa europea: rendimento settimanale dell’indice delle borse europee Eurostoxx;
  • Volatilità implicita borsa europea: volatilità implicita calcolata sulle opzioni at-the-money sull’indice Eurostoxx a scadenza 3 mesi;
  • Rendimento borsa ITA/Europa: differenza tra il rendimento settimanale della borsa italiana e quello delle borse europee, calcolato sugli indici FTSEMIB e Eurostoxx;
  • Spread ITA/GER: differenza tra i tassi di interesse italiani e tedeschi a 10 anni;
  • Spread EU/GER: differenza media tra i tassi di interesse dei principali paesi europei (Francia, Belgio, Spagna, Italia, Olanda) e quelli tedeschi a 10 anni;
  • Euro/dollaro: tasso di cambio euro/dollaro;
  • Spread US/GER 10Y: spread tra i tassi di interesse degli Stati Uniti e quelli tedeschi con scadenza 10 anni;
  • Prezzo Oro: quotazione dell’oro (in USD)
  • Spread 10Y/2Y Euro Swap Curve: differenza del tasso della curva EURO ZONE IRS 3M a 10Y e 2Y;
  • Euribor 6M: tasso euribor a 6 mesi.

I colori sono assegnati in un’ottica VaR: se il valore riportato è superiore (inferiore) al quantile al 15%, il colore utilizzato è l’arancione. Se il valore riportato è superiore (inferiore) al quantile al 5% il colore utilizzato è il rosso. La banda (verso l’alto o verso il basso) viene selezionata, a seconda dell’indicatore, nella direzione dell’instabilità del mercato. I quantili vengono ricostruiti prendendo la serie storica di un anno di osservazioni: ad esempio, un valore in una casella rossa significa che appartiene al 5% dei valori meno positivi riscontrati nell’ultimo anno. Per le prime tre voci della sezione “Politica Monetaria”, le bande per definire il colore sono simmetriche (valori in positivo e in negativo). I dati riportati provengono dal database Thomson Reuters. Infine, la tendenza mostra la dinamica in atto e viene rappresentata dalle frecce: ↑,↓, ↔  indicano rispettivamente miglioramento, peggioramento, stabilità.

Disclaimer: Le informazioni contenute in questa pagina sono esclusivamente a scopo informativo e per uso personale. Le informazioni possono essere modificate da finriskalert.it in qualsiasi momento e senza preavviso. Finriskalert.it non può fornire alcuna garanzia in merito all’affidabilità, completezza, esattezza ed attualità dei dati riportati e, pertanto, non assume alcuna responsabilità per qualsiasi danno legato all’uso, proprio o improprio delle informazioni contenute in questa pagina. I contenuti presenti in questa pagina non devono in alcun modo essere intesi come consigli finanziari, economici, giuridici, fiscali o di altra natura e nessuna decisione d’investimento o qualsiasi altra decisione deve essere presa unicamente sulla base di questi dati.

ESTER to replace EONIA as the risk free rate

News

Set 20 2018

The working group on euro risk-free rates is an industry-led group established in 2018 by the European Central Bank, the Belgian Financial Services and Markets Authority (FSMA), the European Securities and Markets Authority (ESMA) and the European Commission. Its main tasks are to identify and recommend alternative risk-free rates and transition paths.

This initiative to identify a new benchmark rate is consistent with the global recommendation of the Financial Stability Board (FSB). Following various scandals involving market manipulation of quote-based interest rate benchmarks, the FSB recommended the development and adoption of more appropriate near risk-free rates as robust alternatives to existing interest rate benchmarks.

The private sector working group on euro risk-free rates has recommended the euro short-term rate (ESTER) as the new euro risk-free rate. The working group recommends, in particular, replacing the euro overnight index average (EONIA) with the new euro risk-free rate. This is because the EONIA as it stands will no longer meet the criteria of the EU Benchmarks Regulation and will therefore see its use restricted as of 1 January 2020. ESTER will also provide a basis for developing fallbacks for contracts referencing the Euribor, as the compliance of its reformed methodology with the requirements of the EU Benchmarks Regulation will be assessed in 2019.

The working group’s recommendation is not legally binding on market participants. However, it provides orientation and represents the prevailing market consensus as regards the preferred euro risk-free rate to which market participants can now start transitioning. In line with the working group’s terms of reference, its decision to recommend ESTER was taken by consensus by more than the required two-thirds majority.

The selection process for recommending ESTER as the euro risk-free rate was the following: the working group developed key selection criteria against which it assessed a number of candidate rates. The result of this assessment was that three rates had characteristics that could potentially qualify them to become the euro risk-free rate:

(i) ESTER – the new rate reflecting euro area banks’ borrowing costs in the wholesale unsecured overnight market to be produced by the ECB;

(ii) GC Pooling Deferred, a one-day secured, centrally cleared, general collateral repo rate produced by STOXX;

(iii) the RepoFunds Rate, a one-day secured, centrally cleared, combined general and specific collateral repo rate produced by NEX Data Services Limited.

The working group had also launched a market-wide consultation on these three candidate rates before the vote, the outcome of which had provided valuable input into the decision-making process.

IOSCO: policy measures to protect investors of OTC leveraged products

News

Set 20 2018

The Board of the International Organization of Securities Commissions (IOSCO) today issued a final report providing measures for securities regulators to consider when addressing the risks arising from the marketing and sale of OTC leveraged products to retail investors.

Simultaneously, the Board issued a public statement on the risks of binary options and the response of regulators for mitigating the risks and harm to retail investors transacting in these products. The Report on Retail OTC Leveraged Products includes three complementary toolkits containing measures aimed at increasing the protection of retail investors who are offered OTC leveraged products, often on a cross-border basis. The report covers the marketing and sale of rolling-spot forex contracts, contracts for differences (CFDs) and binary options.

The toolkits set out guidance for regulators on:
• Policy measures that can help to address the risks arising from the marketing and sale of OTC leveraged products by intermediaries;
• Educating investors about the risks of OTC leveraged products and the firms offering them;
• Enforcement approaches and practices to mitigate the risks posed by unlicensed firms offering the products

Retail investors typically use these products to speculate on the short-term price movements in a given financial underlying. Typically, the products are offered through online trading platforms often through aggressive or misleading marketing campaigns. Most retail investors trading in these complex products lose money.

The measures in the three toolkits draw largely on IOSCO members’ experiences and practices. The report also includes various policy, educational and enforcement initiatives that IOSCO members have taken to specifically address unauthorized cross-border and online offerings of OTC leveraged products.

The initiatives are intended to serve as useful guidance to IOSCO members as they consider their approaches to address the risks arising from the marketing and sale of OTC leveraged products to retail investors. The policy, enforcement and educational measures included in the report are complementary and should be seen as part of a holistic approach to addressing the risks of the relevant products.

Report on Retail OTC Leveraged Products (PDF)

EBA: increased appetite for client deposits and market-based funding

News

Set 20 2018
The European Banking Authority (EBA) published today two reports on EU banks’ funding plans and asset encumbrance respectively. The reports aim to provide important information for EU supervisors to assess the sustainability of banks’ main sources of funding. The results of the assessment show that banks plan to match the asset side increase in the forecast years by a growth in client deposits as well as market based funding.

159 banks submitted their plans for funding over a forecast period of 3 years (2018 to 2020). According to the plans, total assets are projected to grow, on average, by 6.2% by 2020. The main drivers for asset growth are loans to households and to non-financial corporates.

Over the forecast period, banks expect to increase client deposits and long-term debt funding while short-term debt and repo funding are expected to fall. The projected data shows a concentration of debt securities issuances in 2019 and 2020. Most likely, these issuances are driven by the conjunction of the maturities of central bank funding and the nearing timeline for G-SIBs to comply with the total loss absorption capacity requirements (TLAC) and the progress in the implementation of the minimum requirements for eligible liabilities (MREL).

Data also shows that the spread between interest rates for client deposits and for loans to clients declined in 2017 and most banks expect the spread to decline even further in 2018. On the cost of funding, banks seem optimistic as they assume their costs of long-term market-based funding in 2018 will remain at 2017 levels. Amid higher competition and a fading support by central banks, the evolution of banks’ interest spread and market-based funding costs should be closely monitored, in particular for those banks that are under pressure to increase profitability or without access to market-based funding at reasonable rates.

The asset encumbrance report shows that in December 2017 the overall weighted average asset encumbrance ratio stood at 27.9%, compared to 26.6% in 2016. The modest increase of the encumbrance ratio is not an issue of immediate concern in the funding structure of EU banks, as it is mostly driven by a reduced volume of total assets as opposed to an increase in encumbered assets. The report shows a wide dispersion across institutions and countries, which is consistent with what was observed in the previous report.

Besides repos, covered bonds and over-the-counter derivatives are among the main source of asset encumbrance. Banks in countries that were more affected by the sovereign debt crisis still have high levels but have shown a decrease in the volume of encumbrance, which could reflect a general improvement in the funding situation in these countries.

Latest report from the Basel Committee

News

Set 20 2018

The Basel Committee on Banking Supervision met in Basel on 19-20 September to discuss a range of policy and supervisory issues, and to take stock of its members’ implementation of post-crisis reforms. Particularly, the Committee discussed:

  • the results of the annual assessment exercise for global systemically important banks (G-SIBs). These were approved by the Committee and will be submitted to the Financial Stability Board before it publishes the 2018 list of G-SIBs. The Committee also agreed to publish the high-level indicator values of all the banks that are part of the G-SIB assessment exercise;
  • progress on revising the market risk framework. The Committee expects to finalise these revisions around the end of the year;
  • banks’ responses to regulatory change, including potential arbitrage transactions. The Committee will publish a newsletter on leverage ratio window-dressing behaviour, whereby banks adjust their balance sheets around regulatory reporting dates to influence reported leverage ratios. The Committee will consider Pillar 1 (minimum capital requirements) and Pillar 3 (disclosure) measures to prevent this behaviour. The Committee also agreed to clarify the treatment of “settled-to-market” derivatives in the Committee’s liquidity standards and has published a response to frequently asked questions on this topic; and
  • the outcome of its review of the impact of the leverage ratio on client clearing. It also discussed an associated joint consultation paper by the Committee, Financial Stability Board, Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions on the effects of post-crisis reforms on incentives to centrally clear over-the-counter derivatives, consistent with the G20 Leaders’ commitments to reform OTC derivatives markets. The Committee agreed to publish a consultation paper next month to seek the views of stakeholders as to whether the exposure measure should be revised and, if so, on targeted revision options.

The Committee also agreed to publish a revised version of its Principles on Stress Testing, following the consultation paper published in December 2017. The revised principles will be published next month.

The Committee exchanged views on emerging conjunctural and structural risks. Part of this discussion focused on banks’ exposures to crypto-assets and the risks such assets may pose. The Committee agreed on further work on this topic that will inform its views on banks’ crypto-asset exposures.

Committee members reiterated their expectation of full, timely and consistent implementation of the Basel III standards for internationally-active banks. As part of the Regulatory Consistency Assessment Programme, the Committee assessed Saudi Arabia’s implementation of the Net Stable Funding Ratio and large exposures standard as “compliant”; the reports will be published soon.

Il termometro dei mercati finanziari (14 settembre 2018)
a cura di Emilio Barucci e Daniele Marazzina

Termometro

Set 16 2018
Il termometro dei mercati finanziari (14 settembre 2018) a cura di Emilio Barucci e Daniele Marazzina

L’iniziativa di Finriskalert.it “Il termometro dei mercati finanziari” vuole presentare un indicatore settimanale sul grado di turbolenza/tensione dei mercati finanziari, con particolare attenzione all’Italia.

Significato degli indicatori

  • Rendimento borsa italiana: rendimento settimanale dell’indice della borsa italiana FTSEMIB;
  • Volatilità implicita borsa italiana: volatilità implicita calcolata considerando le opzioni at-the-money sul FTSEMIB a 3 mesi;
  • Future borsa italiana: valore del future sul FTSEMIB;
  • CDS principali banche 10Ysub: CDS medio delle obbligazioni subordinate a 10 anni delle principali banche italiane (Unicredit, Intesa San Paolo, MPS, Banco BPM);
  • Tasso di interesse ITA 2Y: tasso di interesse costruito sulla curva dei BTP con scadenza a due anni;
  • Spread ITA 10Y/2Y : differenza del tasso di interesse dei BTP a 10 anni e a 2 anni;
  • Rendimento borsa europea: rendimento settimanale dell’indice delle borse europee Eurostoxx;
  • Volatilità implicita borsa europea: volatilità implicita calcolata sulle opzioni at-the-money sull’indice Eurostoxx a scadenza 3 mesi;
  • Rendimento borsa ITA/Europa: differenza tra il rendimento settimanale della borsa italiana e quello delle borse europee, calcolato sugli indici FTSEMIB e Eurostoxx;
  • Spread ITA/GER: differenza tra i tassi di interesse italiani e tedeschi a 10 anni;
  • Spread EU/GER: differenza media tra i tassi di interesse dei principali paesi europei (Francia, Belgio, Spagna, Italia, Olanda) e quelli tedeschi a 10 anni;
  • Euro/dollaro: tasso di cambio euro/dollaro;
  • Spread US/GER 10Y: spread tra i tassi di interesse degli Stati Uniti e quelli tedeschi con scadenza 10 anni;
  • Prezzo Oro: quotazione dell’oro (in USD)
  • Spread 10Y/2Y Euro Swap Curve: differenza del tasso della curva EURO ZONE IRS 3M a 10Y e 2Y;
  • Euribor 6M: tasso euribor a 6 mesi.

I colori sono assegnati in un’ottica VaR: se il valore riportato è superiore (inferiore) al quantile al 15%, il colore utilizzato è l’arancione. Se il valore riportato è superiore (inferiore) al quantile al 5% il colore utilizzato è il rosso. La banda (verso l’alto o verso il basso) viene selezionata, a seconda dell’indicatore, nella direzione dell’instabilità del mercato. I quantili vengono ricostruiti prendendo la serie storica di un anno di osservazioni: ad esempio, un valore in una casella rossa significa che appartiene al 5% dei valori meno positivi riscontrati nell’ultimo anno. Per le prime tre voci della sezione “Politica Monetaria”, le bande per definire il colore sono simmetriche (valori in positivo e in negativo). I dati riportati provengono dal database Thomson Reuters. Infine, la tendenza mostra la dinamica in atto e viene rappresentata dalle frecce: ↑,↓, ↔  indicano rispettivamente miglioramento, peggioramento, stabilità.

Disclaimer: Le informazioni contenute in questa pagina sono esclusivamente a scopo informativo e per uso personale. Le informazioni possono essere modificate da finriskalert.it in qualsiasi momento e senza preavviso. Finriskalert.it non può fornire alcuna garanzia in merito all’affidabilità, completezza, esattezza ed attualità dei dati riportati e, pertanto, non assume alcuna responsabilità per qualsiasi danno legato all’uso, proprio o improprio delle informazioni contenute in questa pagina. I contenuti presenti in questa pagina non devono in alcun modo essere intesi come consigli finanziari, economici, giuridici, fiscali o di altra natura e nessuna decisione d’investimento o qualsiasi altra decisione deve essere presa unicamente sulla base di questi dati.

WEF: blockchain technology can fill the trade finance gap

News

Set 14 2018

The World Economic Forum (WEF) and Bain & Company conducted a joint research indicating that, by deploying blockchain, global businesses can generate an extra $1 trillion in trade finance that would otherwise be missed out on.

According to an Asian Development Bank calculation, the global trade finance gap is currently at $1.5 trillion and is estimated to grow to $2.4 trillion by 2025. The research further explains that this issue largely arises from limited access to credit and loans for SMEs that are looking to expand their businesses.

This joint initiative of the Supply Chain and Transport industries and the System Initiative on Shaping the Future of International Trade and Investment of the WEF. It provides a first look at the narrow topic of trade and supply chain finance, including a snapshot of the status of technological developments. Concrete examples indicate that the technologies could narrow the current trade finance gap of $1.5 trillion, representing roughly 10% of global merchandise trade volumes.

Blockchain is able to fill in much of this gap in global trade finance by easing financing for small- and medium-sized enterprises (SMEs) in emerging markets. International trade and global value chains have been critical for both the wealth of nations and the reduction of geopolitical tensions.

Yet, still more remains to be done. Archaic processes pose a significant obstacle for small and medium-sized enterprises (SMEs) and trade with emerging markets. Transforming paper-based documentation into electronic formats and applying smart tools and technologies help to reduce trade barriers and improve processing times at borders, particularly for small businesses and companies in higher risk developing countries.

The researchers further added that a blockchain-based trade finance system would be particularly beneficial to Asian economies as they account for 7 percent ($105 billion) of the trade finance gap, with 75 percent of the global document-based transactions across supply chains.

 

WEF – A New Age for Trade and Supply Chain Finance (PDF)

 

ESMA: high level of diversity in national markets for structured credit products

News

Set 14 2018

The European Securities and Markets Authority (ESMA) has carried out a study of the EU market in structured retail products, from an investor protection perspective.

The research breaks down the EU market geographically into national retail markets and found a high degree of heterogeneity in the types of product sold.

The report identified that although a wide array of different structured products are available to retail investors across the EU, each national market is concentrated around a small number of common types, namely capital protection products, yield enhancement products and participation products.

The analysis was carried out both at an EU-wide level and also specifically in the French, German and Italian retail markets, and suggests that the search for yield has been a common driver of several changes in the distribution of product types.

Structured products sold to retail investors in the EU are a significant vehicle for household savings. Certain features of the products – notably their complexity and the level and transparency of costs to investors – warrant a closer examination of the market from the perspective of investor protection.
Breaking down the EU market geographically into national retail markets reveals a very high degree of heterogeneity in the types of product sold, although among the vast array of different structured products available to retail investors each market is concentrated around a small number of common types.

Changes in typical product characteristics are not uniform across national markets. Analysis both at an EU-wide level and in the French, German and Italian retail markets suggests, however, that the search for yield has been a common driver of several changes observed in the distribution of product types.

ESMA: reports on trend risk and vulnerabilities (PDF)

EU finance ministers and the Single Resolution Fund

News

Set 14 2018

The euro area finance ministers, meeting on 7 September,  exchanged views with Roberto Gualtieri, Chair of the European Parliament’s Committee on Economic and Monetary Affairs, on the euro area’s economic outlook and challenges. They also discussed euro area Member States’ ability to allocate resources efficiently in labour and product markets, and heard a presentation by Christopher Antoniou Pissarides, Professor of Economics at the London School of Economics and Nobel Prize laureate, about the impact of artificial intelligence and automation on labour markets.

EU finance ministers discussed issues related to the common backstop to the Single Resolution Fund (SRF), as well as the implications on financial stability of increasing interest rates. They exchanged views on crypto-assets, particularly initial coin offerings, which they believe have the potential to emerge as a viable form of alternative financing, provided they can be properly regulated.

The Single Resolution Fund (SRF) has been established by Regulation (EU) No 806/2014 (SRM Regulation). Where necessary, the SRF may be used to ensure the efficient application of resolution tools and the exercise of the resolution powers conferred to the SRB by the SRM Regulation. It is composed of contributions from credit institutions and certain investment firms in the 19 participating Member States within the Banking Union.

The SRF ensures that the financial industry, as a whole, finances the stabilisation of the financial system. It will be gradually built up during the first eight years (2016-2023) and shall reach the target level of at least 1% of the amount of covered deposits of all credit institutions within the Banking Union by 31 December 2023.

Within the resolution scheme, the SRF may be used only to the extent necessary to ensure the effective application of the resolution tools, as last resort, in particular:

  • To guarantee the assets or the liabilities of the institution under resolution;
  • To make loans to or to purchase assets of the institution under resolution;
  • To make contributions to a bridge institution and an asset management vehicle;
  • To make a contribution to the institution under resolution in lieu of the write-down or conversion of liabilities of certain creditors under specific conditions;
  • To pay compensation to shareholders or creditors who incurred greater losses than under normal insolvency proceedings.

The SRF shall not be used to absorb the losses of an institution or to recapitalise an institution. In exceptional circumstances, where an eligible liability or class of liabilities is excluded or partially excluded from the write-down or conversion powers, a contribution from the SRF may be made to the institution under resolution under two key conditions, namely:

  • Bail-in of at least 8%: losses totalling not less than 8% of the total liabilities including own funds of the institution under resolution have already been absorbed by shareholders after counting for incurred losses, the holders of relevant capital instruments and other eligible liabilities through write-down, conversion or otherwise;
  • Contribution from the SRF of maximum 5%: the SRF contribution does not exceed 5% of the total liabilities including own funds of the institution under resolution.

Furthermore, the Intergovernmental Agreement (IGA) acknowledges that situations may exist where the means available in the Single Resolution Fund (Fund) are not sufficient to undertake a particular resolution action, and where the ex-post contributions that should be raised in order to cover the necessary additional amounts are not immediately accessible.

In December 2013, ECOFIN Ministers agreed to put in place a system by which bridge financing would be available as a last resort. The arrangements for the transitional period should be operational by the time the Fund was established.

On 8 December 2015, ECOFIN Ministers endorsed a harmonised Loan Facility Agreement (LFA). ECOFIN ministers emphasised that as of 2016, each Member State participating in the SRM (MS) will enter into the harmonised LFA with the Single Resolution Board (SRB) in order to provide a national individual credit line to the SRB to back its national compartment following resolution cases. In the meantime, 19 out of 19 MS have signed an LFA.

Bank of England: Bank Rate maintained at 0.75%

News

Set 13 2018

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 12 September 2018, the MPC voted unanimously to maintain Bank Rate at 0.75%.

The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.  The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

In the MPC’s most recent economic projections, set out in the August Inflation Report, GDP was expected to grow by around 1¾% per year on average over the forecast period, conditioned on the gently rising path of Bank Rate implied by market yields at that time.  Although modest by historical standards, the projected pace of GDP growth was slightly faster than the diminished rate of supply growth, which averaged around 1½% per year.  With a very limited degree of slack remaining, a small margin of excess demand was therefore projected to emerge by late 2019 and build thereafter, feeding through into higher growth in domestic costs than has been seen over recent years.  The contribution of external cost pressures, which has accounted for above-target inflation since the beginning of 2017, was projected to ease over the forecast period.  Taking these influences together, and conditioned on the gently rising path of Bank Rate, CPI inflation remained slightly above 2% through most of the forecast period, reaching the target in the third year.

Recent news in UK macroeconomic data has been limited and the MPC’s August projections appear to be broadly on track.  UK GDP grew by 0.4% in 2018 Q2 and by 0.6% in the three months to July.  The UK labour market has continued to tighten, with the unemployment rate falling to 4.0% and the number of vacancies rising further.  Regular pay growth has risen further to around 3% on a year earlier.  CPI inflation was 2.5% in July.

The global economy still appears to be growing at above-trend rates, although recent developments are likely to have increased downside risks around global growth to some degree.  In emerging market economies, indicators of growth have continued to soften and financial conditions have tightened further, in some cases markedly.  Recent announcements of further protectionist measures by the United States and China, if implemented, could have a somewhat more negative impact on global growth than was anticipated at the time of the August Report.

The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.  Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the withdrawal process.

The Committee judges that, were the economy to continue to develop broadly in line with the August Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.  As before, these projections were conditioned on the expectation of a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union.  At this meeting, the Committee judged that the current stance of monetary policy remained appropriate.  Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.