|
 | 
Nov-06-2009World's Central Banks Signal End to Policy 'Largesse'(topic overview)
CONTENTS:
- ECB holds rates at 1 pct, suggests end of 1-yr tenders (Adds comments from ECB's Trichet) By Kirsten Donovan LONDON, Nov 5 (Reuters) - Interbank dollar lending rates marked new lows on Thursday but sterling and euro rates edged higher as major central banks laid out their latest policy positions and views on the economic recovery. (More...)
- Markets will look for the Reserve Bank of Australia's (RBA) statement on monetary policy due out at 0030 GMT for clues on whether it will continue to raise rates in December. (More...)
- U.S. RATES SET TO STAY LOW Three-month dollar Libor rates USD3MFSR= marked a new low of 0.27531 percent. (More...)
- BNP Paribas ( BNPP.PA ), the euro zone's second-biggest bank by market capitalisation, gained 1 percent after it posted higher profits that beat market forecasts and trumped the results of many rival banks. (More...)
- Before Weber's comments, markets expected banks to soak up another 123 billion euros ($181.4 billion) at the 12-month operation, according to Reuters polling. (More...)
- The Bank of England's move came after last week's surprise news that Britain remained in recession during the third quarter, even as the United States turned to growth. (More...)
- On a brighter note, the pace at which banks tightened loan conditions may have come "close to a halt" in the third quarter, the ECB observed in a recent survey. (More...)
- "So by the time we get to the second quarter, QE is done and we're on to the next phase which is reversal of QE and rate hikes." (More...)
SOURCES
FIND OUT MORE ON THIS SUBJECT
ECB holds rates at 1 pct, suggests end of 1-yr tenders (Adds comments from ECB's Trichet) By Kirsten Donovan LONDON, Nov 5 (Reuters) - Interbank dollar lending rates marked new lows on Thursday but sterling and euro rates edged higher as major central banks laid out their latest policy positions and views on the economic recovery. The Bank of England said it would expand its quantitative easing programme by 25 billion pounds to 200 billion pounds to help kick start Britain's recession-hit economy, while the European Central Bank signalled it would begin wrapping up some of its liquidity provision. European markets were also digesting the latest statement from the U.S. Federal Reserve which late on Wednesday expressed growing confidence that an economic recovery was building, even as it stuck to its commitment to keep borrowing costs near zero for "an extended period." [1] The U.S. economy quit recession in the third quarter and figures due next week are expected to show the euro zone has followed suit but Britain continues to languish. More upbeat forward-looking data has left investors vexed as to when central banks will begin to remove stimulus -- those in Australia and Norway have already raised rates. ECB President Jean-Claude Trichet said on Thursday he expected the euro zone economy to recover at a gradual pace in 2010, after the central bank left rates at 1.0 percent, and signalled some of the bank's liquidity measures could soon be halted. The Bank of England decided to pump another 25 billion pounds ($41 billion) into its economy on Thursday, taking its quantitative easing (QE) to 200 billion pounds in total, but slowed the pace of the programme.[2]
The eurozone remains plagued by rising unemployment and slack demand, reflected in recently falling prices, although it is expected growth numbers next week will show it has left recession. Markets were looking for clues from Trichet on when the bank might trim back some of its lending efforts that have been giving commercial banks more ready cash during the financial crisis. The European moves come a day after the U.S. Federal Reserve also left rates at a record low of 0-0.25 percent and said it would keep them there for "an extended period" even as growth picks up after a deep recession. The world's central banks have slashed interest rates and pumped extra money into their economies and banking systems since the crisis began to bite in late 2007. Attention is increasingly turning to how long those measures — which carry a long-term risk of inflation — must be maintained and when the central bankers think the economy will be strong eough to withdraw all or some.[3] The move follows disappointing growth data last week that showed Britain unexpectedly shrank in the third quarter. The bond purchases increase the total amount of money in the economy and puts it in the hands of banks in hopes they will lend to businesses. The European decisions come a day after the U.S. Federal Reserve also left rates at a record low of 0-0.25 percent and said it would keep them there for "an extended period" even as growth picks up after a deep recession. The world's central banks have slashed interest rates and pumped extra money into their economies and banking systems since the crisis began to bite in late 2007. Attention is increasingly turning to how long those measures — which carry a long-term risk of inflation — must be maintained and when the central bankers think the economy will be strong enough to withdraw all or some.[4]
LONDON, Nov 5 (Reuters) - The top central banks have shown little inclination yet to choke off the extraordinary support given to economies shaken by global financial crisis but some have offered the first signs of changing tack. The Federal Reserve, European Central Bank and Bank of England all left interest rates at record lows this week and the British central bank opted to pump yet more money into its economy.[2] FRANKFURT, Nov 5 (Reuters) - Investors are braced for signs on Thursday that the European Central Bank will soon start weaning banks off cheap and abundant liquidity given that expiry dates are approaching for the central bank's crisis measures. All 78 economists polled by Reuters last week expect the ECB to leave interest rates on hold at a record low of 1 percent this month when its decision is announced at 1245 GMT, with no change expected until late 2010.[5] The European Central Bank has kept its main interest rate unchanged at a record low of 1%, as expected by economists. The ECB began cutting rates in October 2008 as the financial crisis wreaked havoc in the eurozone economy, taking them from 4.25% to their current record low of 1% in May.[6] The European Central Bank and Bank of England kept interest rates at record lows on Thursday but the ECB was coy about undoing its monetary stimulus while the BoE planned to pump billions more pounds into Britain's economy.[7] The European Central Bank kept its main interest rate steady at a record low of 1.0 percent Thursday, a bank spokesman said, as indicators signalled the eurozone economy was still under pressure.[8]
The decision to expand the bond purchasing program comes amid an intensifying debate about whether it actually has helped so far. Former policy makers argued in London earlier this week that while the program helped to improve the debt markets, the effects have failed to trickle down to the real economy. Lower interest rates and a decline of the pound compared with other major currencies might be the real motor for the economy to emerge from the recession, they argued. The pound fell this week after Royal Bank of Scotland and Lloyds Banking Group, Britain'''s two biggest retail banks, were forced by the European Union to sell large parts of their businesses to comply with regulations for accepting state aid. Some investors were concerned the disposals would weaken the British economy, which still strongly relies on its banking sector. An expansion of the central bank'''s asset purchasing plan would further weigh on the currency, they said. Facing a general election next year, the government of Prime Minister Gordon Brown is fighting to reduce a record budget deficit that is forecast to approach 15 percent of G.D.P. this year.[9] Along with the stimulus, equal to more than $40 billion, the central bank also decided to leave the benchmark interest rate at 0.5 percent. Later on Thursday, the European Central Bank kept its main rate steady as well, at 1 percent. The vote by the Bank of England'''s monetary committee raises the amount of assets ''' mainly government bonds ''' being purchased in its stimulus program to ''200 billion. It is the third increase since the central bank started buying assets with ''75 billion in March. '''In this uncertain world I take it as a point of principle''' to continue, Simon Hayes, an economist at Barclays Capital in London, said before the decision.[9] With the Dec. 16 operation just over a month away, analysts and traders hope ECB President Jean-Claude Trichet will reveal on Thursday whether or not banks will again be offered the money at the ECB's main interest rate -- expected to be at 1 percent come December. Any deviation from the tried and tested tactic would be seen as an aggressive move by the European Central Bank and a clear sign it was putting its exit strategy into action. 'Adding a spread (charging above its main rate) would be interpreted as a hawkish move by the ECB, basically a confirmation that they are preparing to hike rates,' said Nomura analyst, and former ECB economist, Laurent Bilke.[10] BERLIN, Nov. 5 (Xinhua) -- The European Central Bank on Thursday kept its key rate at one percent. "On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged, " Jean-Claude Trichet, president of the ECB, said at a news conference.[11]
FRANKFURT, Nov 5 (Reuters) - European Central Bank President Jean-Claude Trichet suggested on Thursday it was unlikely to conduct further 12-month liquidity tenders beyond the December operation already announced and said a decision would be taken next month. The ECB has been offering banks money at its benchmark rate of 1 percent in 12-month liquidity operations in an effort to support bank lending to companies and consumers.[12] NEW YORK, Nov 5 (Reuters) - The euro extended gains against the dollar to hit a session high on Thursday after European Central Bank president Jean-Claude Trichet said the euro zone economy will recover at a gradual pace.[13] FRANKFURT, Nov 5 (Reuters) - A steady rise of China's yuan currency would help rebalance the world economy, European Central Bank President Jean-Claude Trichet said on Thursday.[14]
After the rates announcement was made the president of the European Central Bank, Jean-Claude Trichet, predicted the eurozone economy would recover gradually in 2010. "The latest information continues to signal an improvement in economic activity in the second half of this year," he said.[15]
Seven out of nine economists polled by Reuters had predicted the bank would keep rates on hold. Another two had predicted it would cut rates by 25 basis points. The central bank had cut interest rates six times this year, with the deposit declining from 11.5 percent and the lending rate from 13.5 percent in February. Urban inflation rose 1.9 percent month-on-month in September, up from 1.5 percent in August, its second biggest rise in 12 months, according to government data released last month.[16] Unemployment dropped sharply after Poland joined the EU in 2004, to as low as 8.8 percent last October before the global economic crisis hit. LONDON — Iceland's central bank lowered its official interest rate by a full point to 11 percent as the country tries to get back on its feet after the credit crisis toppled its overweight banking system last year. The official rate had peaked at 18 percent between October 2008 and mid-March of this year, and had been left at 12 percent since June.[17] The Bank of England said a number of indicators of spending and confidence were up, suggested that "a pickup in economic activity may soon be evident." Iceland's central bank lowered its official interest rate by a full point to 11 percent as the country tries to get back on its feet after the credit crisis toppled its overweight banking system last year. It had been at 12 percent since June.[4]
The central bank kept its benchmark interest rate at 6.5 percent Wednesday, considering that it would be '''conducive''' to a recovery and banking intermediation. It was the fourth time Bank Indonesia (BI) has maintained its rate after cutting 300 basis points between December and August.[18] PRAGUE, Nov 5 (Reuters) - The Czech central bank kept interest rates unchanged on Thursday, in line with analysts' forecasts, after a weaker crown eased deflationary pressures and data pointed to a moderate economic recovery.[19] PRAGUE, Nov 5 (Reuters) - The Czech central bank narrowly voted against cutting interest rates on Thursday after a weakening of the crown in the past weeks and new forecasts showed higher inflation and growth next year.[20] CAIRO, Nov 5 (Reuters) - The Central Bank of Egypt left its key overnight interest rates on hold on Thursday, saying the current level was supportive of growth and the control of inflation in the medium term.[21]
LONDON, Nov 5 (Reuters) - The euro was little changed against the dollar and Bund futures extended losses on Thursday after the European Central Bank left interest rates unchanged as expected.[22] LONDON, Nov 5 (Reuters) - The euro held steady on Thursday as the European Central Bank kept interest rates on hold, while the pound rose versus the greenback as the UK central bank raised its asset buying but less than some expected.[23]
LONDON, Nov 5 (Reuters) - European share prices were mostly lower on Thursday ahead of interest rate decisions by the Bank of England and the European Central Bank, with banks and commodity stocks the biggest losers.[24] PARIS, Nov 5 (Reuters) - European stocks were down 0.3 percent by early afternoon on Thursday, with banks and miners among the biggest losers. Shares trimmed their losses after both the Bank of England and the European Central Bank kept rates unchanged.[25]
The decision kept the main two week repo rate, used to sterilize excess liquidity at record low of 1.25 percent, quarter a percentage point above the European Central Bank.[26] Equally rate decisions on Thursday from the European Central Bank and Bank of England will more than likely deliver no change to record low rates. Euro strength, or dollar weakness, will not likely be a major issue when Group of 20 financial leaders meet in Scotland this weekend, even if foreign exchange rates may be discussed in relation to rebalancing the world economy.[27] FRANKFURT — The European Central Bank and the Bank of England kept interest rates at record lows Thursday as their economies struggle to emerge from recession.[3] The European Central Bank (ECB) has kept interest rates on hold at a record low of 1% for the sixth month in a row.[15]
The European Central Bank and Bank of England yesterday joined the U.S. Federal Reserve, Bank of Canada and Bank of Japan in leaving interest rates at historic lows.[28] LONDON (Dow Jones)--European stock markets were modestly lower Thursday, as a final hour selloff on Wall Street Wednesday dampened investors' spirits and triggered a bout of profit taking ahead of key interest rate announcements from the Bank of England and the European Central Bank. "Ultimately, traders got what they expected from the U.S. Federal Reserve Wednesday, and then decided they didn't like it. The weight of speculation today comes down on the BOE extending quantitative easing, so it's mostly a question of by how much," said David Morrison, strategist at GFT. The market is expecting the BOE to announce an.[29]
The British pound was also lower at $1.6523 from $1.6583, while the dollar fell to 90.44 Japanese yen from 90.74 yen late Wednesday in New York. Investors expect the ECB to hold its main interest rate steady at 1 percent when it meets later Thursday. Though at a historic low, the bank's rate is still higher than the Bank of England's and the U.S. Federal Reserve's which are both around zero percent. The Fed held its rate at its Wednesday meeting and the Bank of England is also expected to leave rates unchanged when it too meets later Thursday.[30]
FRANKFURT -- The euro was lower against the dollar Thursday though investors expected the European Central Bank to hold its main interest rate unchanged at 1 percent when it meets later Thursday, which should lend support to the euro.[30] The comments came after the European Central Bank left its key interest rate unchanged at 1.00% Thursday, as widely expected. Financial markets quickly interpreted Mr. Trichet's remarks as indicating that the ECB is beginning to think about unwinding its special stimulus plans.[31]
In the euro zone, Martin van Vliet, a senior economist at ING in Amsterdam, said the timing and pace of the E.C.B.''' s exit from its current policy stance would largely depend on the evolution of bank lending. '''Credit growth is the connecting link between risks to price stability, the economic outlook and the health of the financial system ''' the three factors recently identified by E.C.B. president Trichet as determining the monetary exit,''' he said in a research report. He added that bank lending to nonfinancial companies had remained subdued recently, but there had been tentative signs that mortgage lending ''' a leading indicator of the euro-zone business cycle ''' '''has turned the corner.''' If sustained, he added, this might allow the E.C.B. to start to raising interest rates during the first half of next year.[9] The U.S. Federal Reserve's decision to leave a key interest rate unchanged had little impact on Chinese markets, analysts said. The World Bank on Wednesday raised its forecast for China's economic growth this year from 7.2 percent to 8.4 percent, reflecting the country's massive stimulus measures.[17] The two central banks' decisions came a day after the U.S. Federal Reserve said it would keep interest rates near zero for an extended period.[25] As expected, the U.S. central bank closed out a two-day meeting on Wednesday with a decision to keep benchmark overnight interest rates in a range of zero to 0.25 percent.[1]
Investors expect 12-month interest rates in mid-December to be 0.88 percent, according to overnight index swap rates (OIS) starting mid-December, BNP Paribas ( BNPQY.PK - news - people ) calculates. They are also forecasting a gradual exit process and post-crisis return to normality for the central bank. A recent Reuters poll showed traders also expect the ECB to keep the cost pinned to its headline rate.[10]
The Monetary Policy Committee 'assesses that the current level (of) policy interest rate is appropriate and supportive of the economic recovery while consistent with maintaining core inflation within the CBE's comfort zone in the medium term,' the central bank said.[21] Since the fall of inflation the banking sector and money market experts have been predicting a bigger cut in the policy interest rate, which is still 13 per cent, highest in the region. Experts said the State Bank, which is supposed to control inflation, took conservative approach to its monetary policy by tightening the monetary expansion resulting into the slowdown of economic growth.[32]
One- to 2-year interest rate swaps (IRS) and forward rate agreements rose 10-15 basis points. 'Rate cut defenders. saw the economy continuing to be under pressure, and that bringing inflation to target on the monetary policy horizon requires cutting rates,' he said.[20]
The bank "expects the euro area economy in 2010 to recover at a gradual pace, recognizing that the outlook remains subject to high uncertainty." He urged banks to do their part to get the economy back on its feet. "We call upon the banks, a very strong message to banks, to repair their balance sheets, to do their jobs to lend to the private sector, the economy to private households." With interest rates already about as low as they can go, markets are watching central bankers' efforts to stimulate the economy by other means such as expanding the money supply. The Bank of England did that Thursday by saying it would add 25 billion pounds ($41 billiom) to its existing 175 billion pound program of bond purchases. It was less than the 50 billion pound increase some analysts had expected.[4] With the economy still mired in recession, the central bank said it would spend another 25 billion pounds ($41 billion) to buy assets from banks to expand the money supply. The Bank, which held its key lending rate at an all-time low of 0.5 percent, reiterated its view that recovery would be slow.[17]
The British central bank decided to provide an extra boost by adding 25 billion pounds ($41 billiom) to the supply of money, following disappointing growth data last week that showed Britain unexpectedly shrank in the third quarter. ECB President Jean-Claude Trichet said in his opening statement that the countries that use the euro currency face "stronger than anticipated risks, though confidence may improve." He also indicated "labor market demand may also improve."[3] Jean-Claude Trichet, the European Central Bank president, hinted strongly that the central bank was preparing to withdraw emergency measures to pump more money into the euro economy to fight the recession.[33]
Not so the European Union's central bank. The European Central Bank announced Thursday that its "extraordinary liquidity measures" (read: quantitative easing) put into place to stave off a major economic failure are "no longer needed to the same extent as in the past," and as a result will be "phased out in a timely and gradual fashion." T he euro initially surged against the U.S. dollar on the news, which is in stark contrast to the position the Fed communicated on its own liquidity measures in its Wednesday monetary policy statement. The Fed did trim its program to buy agency debt by $25-billion (U.S.), to $175-billion, but acknowledged that this was largely because there just wasn't enough of the debt out there in the market for it to buy. The reduction represents a mere 2 per cent of its program to purchase agency debt and mortgage-backed securities. The Fed also didn't announce any new plans to buy U.S. government paper, after its previous $300-billion program was completed in October.[34] LONDON (Reuters) -- The dollar and the yen gained broadly Thursday as the euro and perceived higher risk currencies succumbed to profit-taking ahead of a policy decision by the European Central Bank. Traders were wary of extending the rally in riskier assets triggered after the U.S. Federal Reserve on Wednesday kept its commitment to low borrowing costs for an "extended period", driving the safe-haven dollar lower.[35]
'The Czech central bank decision most likely reflects signals that the global economy started to recover and to some extent it might have also been impacted by the recent weakening of the Czech crown,' said Radomir Jac, chief analyst at Generali PPF Asset Management. The European Central Bank and the Bank of England both kept benchmark rates flat on Thursday.[20] Markets would watch closely for any talk of possible intervention or of the use of non-standard easing tools at a central bank news conference due later on Thursday. 'Any piece of information that will arrive today will be significant. because if they don't come up (with non-standard easing tools) today, then they probably will not do it any more,' said Pavel Sobisek, chief economist at Unicredit in Prague. The European Central Bank and the Bank of England both kept benchmark rates flat on Thursday.[19] NEW YORK — The dollar was nearly flat Thursday after the European Central Bank and Bank of England left their respective key interest rates unchanged.[36] The bank also released its new quarterly forecast, saying risks to it were moderately on the upside due to the exchange rate development. Central bank Governor Zdenek Tuma said the board had discussed tools other than interest rates that could be used to loosen policy, but the situation did not require them.[37]
PRAGUE, Nov 5 (Reuters) - The Czech central bank governing board voted 4-3 on Thursday to keep the main interest rate unchanged, with the dissenters supporting a 25 basis point cut, the bank said.[37] CAIRO (Reuters) - Egypt's central bank left its key overnight interest rates on hold on Thursday as expected by most analysts and marking the first pause since it began cutting rates in February.[16]
Markets had partially priced in a rate cut for Thursday following the last meeting in September and after central bank Governor Zdenek Tuma spoke in favor of cutting interest rates.[26]
The three-month rate, traditionally the main gauge of interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, also fell to a new record low, at 0.716 percent, surpassing Wednesday's 0.719 percent.[38] Neither bank touched interest rates, already at record lows of 1 percent for the eurozone and 0.5 percent in Britain.[17]
'''The level seems consistent with a real interest rate of around 1.5 percent against BI'''s 2010 expected inflation rate,''' Bank Danamon economists Anton Gunawan and Helmi Arman said in a statement. BI expected inflation to reach 5 percent (plus minus 1 percent) in 2010, up from an estimated 4 percent this year.[18] Seven out of nine economists polled by Reuters had predicted the bank would keep rates on hold. Another two had predicted it would reduce rates by 25 basis points. The bank cut rates six times this year after urban inflation declined from a mid-2008 high of 23.6 percent.[21]
John Sfakianakis, Middle East and North Africa economist for Saudi Fransi Bank, said the monetary authority could be signaling it believed interest rates could remain at this level for the medium term. 'if they have rising inflation over the next few months, they will not be able to manage inflation by maintaining interest rates at this level.' The bank may need to tighten up money supply, he added.[21]
The ECB said the one-year loans available to commercial banks as part of an emergency relief package will be withdrawn from the market, a move that could come as early as next month. "Not all our liquidity measures will be needed to the same extent as in the past," ECB President Jean-Claude Trichet said after the bank announced it was holding its benchmark interest rate at 1 per cent.[28] ECB president Jean-Claude Trichet hints at end to emergency liquidity measures. "Not all our liquidity measures will be needed to the same extent as in the past as the economy recovers", he said at a press conference in Frankfurt on Thursday after the ECB held interest rates at a record low 1pc. "The Governing Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term," he said.[33]
Benchmark rates remained at 1.0 per cent for the eurozone and 0.5 per cent for Britain, as ECB president Jean-Claude Trichet pressed governments to establish a "clear and credible exit strategy" to correct "high and sharply rising fiscal imbalances." ING senior economist Carsten Brzeski noted that "when there is nothing to say about monetary policy or the economy, central bankers like to devote some time to their real hobby-horse: fiscal policy."[7] LONDON -- The European Central Bank will begin absorbing excess liquidity from its monetary stimulus programs in a "timely" fashion, ECB President Jean-Claude Trichet said Thursday.[31] Markets now await ECB President Jean-Claude Trichet's news conference at 1330 GMT on any clues for a withdrawal of the central bank's easing measures.[23] ECB President Jean-Claude Trichet said that the 16 euro countries face an uncertain recovery. He broadly hinted the ECB was getting ready to take back some of its added lending measures that have provided banks with ready cash during the financial crisis and promised to say more at next month's meeting. LONDON — British industrial production and new car registrations rose in recent months, data showed, as the Bank of England announced it would increase the size of its monetary stimulus.[17] ECB President Jean-Claude Trichet said that the 16 euro countries face an uncertain recovery. He broadly hinted the bank was getting ready to take back some of its added lending measures that have provided banks with ready cash during the financial crisis and promised to say more at next month's meeting. "We will do the phasing-out in a timely and gradual fashion, I'll give the rendezvous in a month's time," he said. He said he wouldn't discourage speculation the bank will end its 12-month credits to banks, one of its crisis measures aimed at keeping the financial system afloat. He said the eurozone faces only a gradual and uncertain recovery. "At the same time, the latest information continues to signal an improvement in economic activity in the second half of this year," he said.[4]
Analysts will be watching the E.C.B. president, Jean-Claude Trichet, closely for any hints on when the bank, which serves the 16 countries using the euro, might start to unwind the extraordinary measures it took to support banks.[9]
The central bank expects the euro economy in 2010 to recover at a gradual pace although "the outlook remains subject to high uncertainty". Mr Trichet said that while a decision on the ECB's programme of offering 12-month money to banks at just 1pc would be taken next month, he would not "dispel" a market view that the scheme would not be extended beyond December.[33] The Bank of England plans to pump more money into programs to support the economy, while the European Central Bank signaled it is considering rolling back such efforts. The decisions followed separate meetings Thursday at which both central banks struck cautious tones on their economies, with the ECB staking out a modestly more optimistic stance.[39] FRANKFURT — The head of the European Central Bank hinted it could begin withdrawing some of its crisis measures soon, while the Bank of England pumped more money into the economy in an attempt to get Britain out of recession.[17]
FRANKFURT, Nov 5 (Reuters) - Six-month benchmark market rates fell to match the European Central Bank's main policy rate for the first time in eight months, ahead of the European Central Bank's rate decision due at 1245 GMT.[38] PARIS (Reuters) - European stocks were down 0.5 percent at midday on Thursday, with banks and miners among the biggest losers as the previous session's strong gains were trimmed ahead of the European Central Bank's rate decision.[40]
The bank kept the main two week repo rate, used to curb excess liquidity, a quarter percentage point above the European Central Bank rate at 1.25 percent.[20] Poland kept rates on hold last Wednesday showing a shift to a neutral bias from an easing one. Hungary's central bank may cut rates by 25 basis points to 6.75 percent later this month, although some market watchers have said further weakness in the forint may slow rate cutting or even halt it for some months.[19]
On Feb. 2, the central bank of will begin reducing the amount of riskier assets it will accept as collateral to 20 per cent of the total pledge by April from the current 100 per cent. The Bank of England, which kept its own key rate at a record low 0.5 per cent, announced that it will commit an additional £25-billion to buy assets from commercial banks, boosting the size of its aggressive quantitative easing program to £200-billion.[28] The ECB decision was seen as more predictable, with the central bank expected to keep rates at a record low 1%, though market players would keep a close eye on the news conference for any clues on possible exit strategies.[35]
Trichet's comments imply the central bank will not hold any more 12-month liquidity operations after the third one, scheduled for Dec. 16. This would be the ECB's first move to wean banks off cheap and abundant liquidity. 'I will only say at this stage that the market as far as I see it is not expecting that we will prolong the LTRO one year or over and above the decision that had already been taken and I will say nothing to dispel this present sentiment of the market,' Trichet told a news conference.[12]
The ECB's 60 billion euro covered bond buying programme continued to make slow progress. The total purchased inched up to 20.980 billion euros from 20.929 billion euros, leaving it just over a third of the way through its plan. The ECB and the 16 euro zone national central banks are buying euro-denominated covered bonds -- debt backed by a pool of assets such as mortgage loans that remain on the issuing bank's balance sheet -- over the next year, from both primary and secondary markets.[41] Between Oct. 5 and Oct. 30, the ECB and euro-zone national central banks bought 4.180 billion euros ($6.21 billion) worth of bonds, the ECB said in a report, compared with 7.374 billion in September.[42]
FRANKFURT, Nov 5 (Reuters) - The European Central Bank bought covered bonds in October mostly on the secondary market, but the pace of purchases slowed from September, a report on its 60 billion euro purchase programme showed on Thursday.[42] FRANKFURT, Nov 5 (Reuters) - The amount of cash banks deposited at the European Central Bank remained at roughly the same level as the previous day, data showed on Thursday.[41]
FRANKFURT, Nov 4 (Reuters) - The European Central Bank welcomed plans to give it the key role in a new European supervisory body, saying it would neither distract it from ensuring price stability nor create a threat to its independence.[43]
BERLIN, Nov. 5 (Xinhua) -- The European Central Bank (ECB) calls for euro area governments to adopt "fiscal exit and consolidation strategies according to the economic status on Thursday.[44]
The central bank says the Czech economy has passed the worst but sees a feeble recovery. It has slashed a total of 2.50 percentage points off borrowing costs since August 2008 as inflation plummeted during the economic downturn. The bank was due to release its new quarterly forecasts at the news conference.[19] At 1207 GMT, the FTSEurofirst 300 index of top European shares was down 0.5 percent at 979.73 points, after rising 1.6 percent in the previous session. "When you see the Bank of England continuing to ease, it confirms the view the central banks are more exercised by deflation risks than inflation and they are a long way from hiking rates," said Bernard McAlinden, strategist at NCB Stockbrokers.[40] Annual inflation has declined to 9.7 percent in October, and is expected to fall sharply next year, the central bank's monetary policy committee (MPC) said.[17] Some analysts believe that the central bank could cut the discount rate by 1 per cent in the next monetary policy and more in the subsequent policy after two months.[32]
Tuma did not say how he voted, but the bank will reveal individual votes next Friday. Tuma was outvoted when he and Vice-Governor Miroslav Singer supported a cut at the previous meeting in September. The governor said the bank discussed other possible tools to ease policy, which the market had closely waited for after Tuma mentioned the option last month, but that the situation did not require using them. Some analysts have said that the crown's 3.2 percent easing since the last meeting until Thursday had done much of the job and the central bank would not need to cut or employ tools such as quantitative easing or foreign exchange intervention.[20] The headline revised inflation figure will include the effect of indirect tax increases, part of the government austerity package, which may put upward pressure on prices. The central bank, which is targeting headline inflation of 2 percent plus or minus one percentage point from 2010, excludes the primary impact of tax changes on prices from its decision-making. Analysts said they saw other factors leading to a lower inflation path than the 1.9 percent previously predicted for the end of 2010.[19] A core inflation index the central bank began publishing last week stood at 6.3 percent.[21]
The day's Libor rates were set just ahead of the BoE's decision and the benchmark three-month sterling rate GBP3MFSR= rose to 0.60250 percent. Short-sterling rate futures FSSM0FSSZ0 fell after the BoE announcement, also pushing implied rates higher, as there had been some expectation in the market the central bank would increase its programme by a greater amount. "This was the right decision.[1] The U.S. central bank was more explicit than it had been previously on why it expects to be able to keep rates "exceptionally low" for a long time, citing the slack that has built up in the economy and the lack of an inflationary threat. "The FOMC seemed to be trying to avoid giving the market any openings for a bearish interpretation of its statement," Wrightson ICAP strategists said in a note.[1] 'The Czech central bank decision most likely reflects signals that the global economy started to recover and to some extent it might have also been impacted by the recent weakening of the Czech crown,' said Radomir Jac, chief analyst at Generali PPF Asset Management.[19]
GDP grew by an annualised 4.9 percent in the first quarter of the financial year that began on July 1, up from 4.7 percent in the 2008/09 financial year. 'This outturn has been better than previously expected at the outset of the global financial crisis yet remains below the 7 percent average registered over the past three years,' the central bank said in its statement.[21] "Just because you withdraw emergency measures doesn't mean you're going to start raising rates." The Bank of Canada also is paring many of its emergency lending programs, eliminating or reducing the cash auctions it established a year ago when financial institutions struggled to find private sources of money. Governor Mark Carney's central bank continued on that path yesterday, saying that as of February, banks that settle their overnight accounts through the Bank of Canada will have to resume doing so with higher grade collateral. In October 2008, the central bank said it would temporarily accept riskier collateral, such as asset-backed commercial paper, for overnight loans.[28] The ECB's money market group, a mix of over 20 banking experts the ECB uses to gauge market conditions, has already discussed bumping up the rate. Roughly half of them were even in favour of upping the price at September's refi. Whatever they decide, the rate policymakers opt for is likely to set the tone for crunch decisions that lie ahead. Many of the emergency measures the ECB has put in place to combat the financial crisis, such as uncapped, fixed-rate lending to banks are only guaranteed into January, meaning the ECB must either renew them, replace them or scrap them.[10]
The overnight lending rate was left at 9.75 percent and the deposit rate stayed at 8.25 percent. "The Monetary Policy Committee (MPC) decided to keep its overnight deposit rate and overnight lending rate unchanged," the bank said on its website without elaborating on the decision.[16] "The November ECB monetary policy meeting should culminate in the widely expected decision of keeping the main refinancing rate at 1 percent," Ideaglobal analysts said in a Thursday research note.[3]
The BoE kept rates on hold and said it would expand its quantitative easing programme by 25 billion pounds ($41 billion), while the ECB kept interest rates at 1 percent as expected.[25] The yen was unchanged at 90.75 per dollar. The pound drifted lower to $1.6573 with the Bank of England (BoE) on Thursday expanding its asset purchase programme by 25 billion pounds. Both the ECB and Bank of England left interest rates on hold Thursday, as did the Fed the day before.[45] The market did not budge after the Bank of England kept rates unchanged and said it would expand its quantitative easing programme by 25 billion pounds a day after the U.S. Federal Reserve said it would keep interest rates near zero for "an extended period".[40]
The Bank of England also kept UK interest rates on hold at 0.5% earlier on Thursday.[15]
'''Whether it is IMF, State Bank or the government, the high interest rate has already cost the economy and will continue to do so heavily if the interest rate remains high for the industries,''' said Aamir Aziz, a textile manufacturer and exporter. He said his business had gone down to one third of what it was a couple of years since the high cost of doing business made his products uncompetitive in the international market.[32] The BoE also left interest rates at a record low of 0.5 percent and said the prospect was for "a slow recovery in the level of economic activity". The Fed on Wednesday expressed growing confidence that an economic recovery was building but stuck to its commitment to keep borrowing costs near zero for "an extended period".[2] Analysts were divided on whether the BoE would expand its quantitative easing policy or call a halt to it, while keeping key interest rates unchanged at a record low of 0.5%.[35] The BoE also left interest rates unchanged at a record low of 0.5%, as expected.[35]
The ECB is expected to keep rates at a record low of 1.0 percent in its meeting on Thursday and economists see the next move as a hike, but not until the fourth quarter of 2010.[38] The drop came as rising unemployment and financial uncertainty continue to drag on consumer confidence. Data this week showed unemployment levels across the 16 states that use the euro rose to 9.7% in September, the highest rate since January 1999. The ECB began cutting rates in October 2008, taking them from 4.25% to their current record low in May. It has also provided unlimited loans to commercial banks in a bid to boost credit.[15] Since the ECB's October meeting, data has broadly supported the view that recovery is progressing in the eurozone. The Bank of England also kept rates on hold earlier today, leaving them at a record low of 0.5%.[6]
Six-month Euribor fell to 1.000 percent from 1.002 percent, a record low, and the first time market rates for as long as half a year have been at or below the main refinancing rate since early March, just before the ECB cut rates by 50 basis points.[38] By 0917 GMT, the pan-European FTSEurofirst 300.FTEU3 index of top shares was down 1.2 percent at 972.82 points. The benchmark index has gained nearly 17 percent this year and is up around 50 percent since reaching a record low in early March.[24]
JAKARTA, Nov. 5 (Xinhua) -- Indonesian Finance Minister Sri Mulyani predicted Thursday that the inflation rate would be below 4 percent, or lower than the government's initial assumption 4.5 percent set in the temporary state budget 2010. "The low annual inflation rate this year is affected by the lowering public purchase," the minister was quoted by the Detik.com as saying after attending a meeting with the president in the presidential palace. She said that inflation rate in October this year stood at 0.19 percent with calendar-basis inflation rate from January to October at 2.48 percent, while year-on-year inflation rate stood at 2.57 percent.[46] Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council's aim of keeping inflation rates below, but close to 2 percent over the medium term. The latest information continues to signal an improvement in economic activity in the second half of this year, Trichet said.[11]
The bank's president, Jean-Claude Trichet, will discuss the decision at a press conference later. The Bank of England also left its main rate at 0.5 percent but increased its program to expand the money supply.[47] "The Governing Council of ECB calls upon governments to communicate and implement in a timely fashion ambitious fiscal exit and consolidation strategies based on realistic growth assumptions, with a strong focus on expenditure reforms," said Jean-Claude Trichet, president of the ECB, at the press conference to comment on key rate decisions.[44] Later in the session, investors will closely watch comments from ECB President Jean-Claude Trichet, looking for insight on the outlook for rates in Europe.[25] It had jumped to as high as $1.4917 in the previous session after ECB President Jean-Claude Trichet sounded optimistic about a 2010 recovery and hinted at a slow motion exit strategy. It also held steady at above 135 yen, having gained nearly 0.1 percent on Thursday.[45] In a legal opinion, the ECB welcomed plans for the European Systemic Risk Board (ESRB) -- a new body to be chaired by ECB President Jean-Claude Trichet.[43] ECB President Jean-Claude Trichet told reporters in Frankfurt that euro zone countries face "stronger than anticipated risks, though confidence may improve."[28]
The 10-year yield on the benchmark bund was up to 3.365% from 3.337% previously. Mr. Trichet said the ECB sees more signs of economic recovery in the second half of this year and predicted that prices in the euro zone will cease contracting in "coming months."[31] Policy makers are trying to strike an incredibly delicate balance between the need to nuture an economic recovery most describe as fragile, while at the same time keep from inflating bubbles in housing, equity and other asset markets. For now, central bankers such as Mr. Trichet appear willing to err on the side of stimulating economic growth, although more policy makers now acknowledge they should be ready to try to deflate asset-price bubbles given what they learned from the financial crisis. "It's definitely the beginning of an exit for them, but that doesn't mean they'll be tightening any time soon," said Benjamin Reitzes, an economist with BMO Capital Markets.[28] '''We believe a cut of 2 per cent in the policy interest rate will accelerate the pace of economic growth, which has been sluggish for mote than 20 months,''' said the senior banker.[32] '''There is no reason to keep the interest rate so high while the inflation has fallen to 10.7 per cent and the monetary expansion is well under control,''' said Abid Saleem, a researcher and analyst. He said the t-bills rate would fall once the policy discount rate is reduced.[32]
Analysts said the ECB could make it clear that the last scheduled one-year liquidity operation, due on Dec. 16, will indeed be the last. It could also decide to bump up the interest rate at the operation, adding a margin over 1 percent, after discussions which started at 0800 GMT. "They could take the November meeting as an opportunity to say they will start depleting the non-conventional measures," RBS economist Jacques Cailloux said.[5] Higher interest rates can support a currency as investors transfer funds in search of better returns. The ECB and BoE maintained their rates at 1 percent and 0.5 percent, respectively, higher than the Federal Reserve's current rock-bottom range near zero.[36]
"The enhanced credit support was not for eternity," he added. The ECB would keep interbank interest rates well below the main refinancing rate, he said.'' It seems banks will have to learn to play again with each other rather than relying only on the ECB's largesse. "This is exactly the same language as we always have utilised.[48] BI was confident that banks would respond to the BI rate in adjusting deposit and lending rates. BI acting governor Darmin Nasution said last week banks would be asked to cut interest rate spread to lower lending rates, after 14 major banks agreed on Aug. 20 to cut their deposit rates to 150 basis points above the BI rate within three months; and after three months they will further cut the rates down to 50 basis points above the BI rate.[18] The Governing Council also left interest rates on the marginal lending facility and the deposit facility unchanged at 1.75 percent and 0.25 percent respectively.[11]
Interest rate markets were pricing in a 65 percent chance of a 25 basis point rate cut, dealers said.[19] Interbank rates have experienced a year-long descent due to the ECB's rapid run of official interest rate cuts and its massive injections of liquidity, although recent weeks have pointed to a reduction in excess cash.[38]
'''Britain seems to be lagging even the laggards.''' In the United States, the Federal Reserve on Wednesday said it would keep its benchmark interest rate at virtually zero, and that economic conditions were likely to warrant '''exceptionally low''' rates for '''an extended period.'''[9] The Federal Reserve kept U.S. interest rates on hold at between 0% and 0.25%.[15]
The dollar was not forecast to gain any serious ground to the euro for many more months, or at least until the U.S. Federal Reserve decides the time is right to raise rates.[27]
Markets will look for the Reserve Bank of Australia's (RBA) statement on monetary policy due out at 0030 GMT for clues on whether it will continue to raise rates in December. The Bank which raised rates earlier this week for a second straight months is likely to lift inflation and growth forecasts. [45] Experts said the State Bank, which is supposed to control inflation, took conservative approach to its monetary policy by tightening the monetary expansion resulting into the slowdown of economic growth. ''' Photo by Reuters.[32]
'''There is a space for a cut of 2 per cent in the discount rate but the State Bank is cautious against the inflation and possibly sudden increase in the monetary growth,''' said Abid. Currently, the private sector is out of bank borrowing leaving space for the government to attract investment for its budgetary support requirement.[32]
The bank's new quarterly macroeconomic forecasts showed headline inflation rising to 2.4 percent at the end of 2010, in range of the bank's target of 2 percent +/-1 percentage point, including a one-off impact of tax hikes. It raised the 2010 growth forecast to 1.4 percent from 0.7 percent, but said that growth would weaken in the course of the year due to high unemployment and weaker foreign demand.[20]
A new core index the central bank began publishing last week climbed 1.0 percent month-on-month in September, also the second highest increase in the last year.[16] The central bank maintains a high discount rate as per the agreement with the IMF, which has been providing loans ($11.3 billion) to the country for balance of payments as well as budgetary support.[32] The ECB said commercial banks deposited 91.529 billion euros at the 16-country bloc's central bank overnight, compared with 91.243 billion previously.[41] Germany's Axel Weber fanned speculation that the central bank may reveal at least part of its hand on Thursday when he said last week that the policy of unlimited funds at main liquidity operations should be kept on, while very long-term liquidity operations could go sooner. Weber is so far the only policymaker to announce his preferences for how the ECB should exit its support measures, and he said it was premature to set a concrete time-frame.[5] The ECB has flooded the bloc's financial system with abundant liquidity since the onset of the financial crisis in mid-2007. The institution scrapped its policy that banks have to bid for a limited amount of central bank funds and widened the range of collateral it accepts.[31]
The European Central Bank was scheduled to issue a policy decision later in the day.[35] The greenback firms as investors shy away from risky assets ahead of a policy statement from the European Central Bank.[35]
LONDON — European stock markets recouped early losses and closed higher as more optimistic economic assessments from the European Central Bank and the Bank of England helped recoup earlier losses.[17] FRANKFURT, Nov 4 (Reuters) - The European Central Bank will set the tone for its exit strategy when it lays out the terms for its third, and probably final, handout of one-year loans.[10] The European Central Bank moved significantly closer yesterday to implementing a softly-softly "exit strategy" to unwind the exceptional measures it has taken to combat continental Europe's severe recession.[49]
M ajor central banks are taking their first halting steps toward reducing the emergency high-octane fuel they have been pumping into the world's sputtering economies. Even as they begin the laborious process of pulling back on the amount of the excess cash they flooded into the financial system to prevent the worst collapse in decades from turning into another Great Depression, they aren't about to slam on the monetary brakes and risk driving a fragile recovery off the rails.[28] Just a few weeks ago, many economists had expected the U.K. central bank to suspend the emergency program.[39] The purchases over the next three months are financed by the issuance of central bank reserves, creating new money and putting in the hands of the banks.[3] The latest increase is smaller than the sums the British central bank had made available in the previous three months. "Essentially, they're removing themselves from the market, but at a gradual pace," Mr. Reitzes said. "They don't want to just stop buying all at once." The Fed has taken a similar tack, extending its purchases of agency debt and mortgage-backed securities to the end of the first quarter of 2010 and gradually reducing the weekly amounts so it can slowly ease the market off the government crutch.[28]
Central bankers may also be worried about the apparent two-tier recovery in European banks. Some, especially investment banks, have managed to turn around their balance sheets while others, including some large retail banks, still appear fragile and dependent on cheap money from the E.C.B.[9] BI expected banks would disburse more loans in the coming months as the economy began recovery and lending rates declined.[18] As expected, the overnight lending rate was left at 9.75 percent and the deposit rate stayed at 8.25 percent, marking the first pause since the bank began cutting rates in February.[21]
The crown weakened by 3.2 percent between the last meeting and the rate decision, following comments by Governor Zdenek Tuma that the bank could consider intervening on the foreign exchange market if the currency kept strengthening.[19] 'We consider that an orderly and progressive appreciation of the currencies of the emerging economies, particularly in China. is something which would be welcome for the overall prosperity and rebalancing of the global economy,' Trichet told a news conference after the ECB kept rates on hold at 1.0 percent.[14] Trichet said ECB will also draw back some of the emergency liquidity measures introduced to fight the worst recession since World War II as "not all our liquidity measures will be needed to the same extent as in the past." ECB maintains its key rate at 1.00 percent on Thursday, "on the basis of its regular economic and monetary analyses."[44] The euro hit as high as $1.4917 EUR=, according to Reuters data. It last traded at $1.4905, up 0.2 percent. Trichet said the latest evidence suggests a pick-up in activity in the second half of this year and that extra liquidity measures can be phased out in a timely manner.[13] Calderon expects the economy will grow by 3 percent in 2010. BERLIN — German government tax revenue is expected to fall about 3 billion euros ($4.4 billion) short of previous estimates this year, the Finance Ministry said, but the new governing coalition vowed to press ahead with tax-cutting plans. Germany's economy, Europe's biggest, is expected to shrink by 5 percent this year and grow by 1.2 percent in 2010.[17] The slowdown has weighed on tax revenue. A regular meeting of tax experts this week estimated that this year's total tax revenue will be 524.1 billion euros ($779.18 billion) — 2.9 billion euros ($4.31 billion) less than was forecast in May, and largely a result of changes in tax regulations, the Finance Ministry said. That would mean a 6.5 percent decline compared with the previous year, a post-World War II record, said Andreas Rees, an economist at UniCredit in Munich.[17]
BI estimated the economy should show full-year growth of between 3 percent and 4 percent, with a real upside possibility. Standard Chartered economist Eric Sugandi said BI might start raising its rate early next year on rising inflationary pressures.[18] The gross domestic product in Britain dropped 0.4 percent in the third quarter, surprising many economists who had predicted slight growth helped by a weak pound. It was the sixth consecutive contraction, meaning Britain'''s economy has probably failed to follow the United States, Germany, France and Japan out of recession.[9]
Mark Wall, an economist at Deutsche Bank, said in a recent research report that the first increase would probably not come until the third quarter of 2010. '''The economy and banking markets are showing signs of improvement, but we expect the E.C.B. to play it safe and defer any exit decisions,''' he wrote.[9]
The Bank of England decided Thursday to inject ''25 billion more into the economy to try to spur a recovery after surprising data showed the recession in Britain had dragged into the autumn, Julia Werdigier reported in The New York Times.[9] The Bank of England said it would expand its quantitative easing program by 25 billion to help kick-start Britain's recession-hit economy.[35]
In Britain's case, the Bank England decided things are still looking bad enough to expand its bond purchase program, called quantitative easing, by 25 billion pounds to 200 billion pounds from 175 billion pounds. It was less than the 50 billion pounds some analysts expected.[3]
The U.S. Federal Reserve made no change to policy settings on Wednesday despite growing confidence of a recovery, but the Bank of England is tipped to expand its quantitative easing program later on Thursday.[5]
The Bank of England said a number of indicators of spending and confidence were up, suggested that "a pickup in economic activity may soon be evident." Economists had widely predicted that both banks would leave rates steady.[3] KARACHI: The State Bank on Wednesday eased off the benchmark 6-month treasury bills rate but the market experts see more and bigger decline in the rates with the fall of discount rate in the next monetary policy at the end of this month.[32] 'Rate cut defenders. saw the economy continuing to be under pressure, and that bringing inflation to target on the monetary policy horizon requires cutting rates.[26] "We expect the economy in 2010 to recover at a gradual pace, recognizing that the outlook is subject to high uncertainty," Mr. Trichet told a news conference. "In coming months, annual inflation rates are expected to turn positive again," he said.[31] The annual inflation rate was -0.1 percent in October, according to Eurostat's fresh estimate, and it was expected to rise above zero again in the coming months, Trichet said.[11]
Next week, the release of third quarter eurozone economic growth figures are expected to show the bloc exited recession, growing by around 0.5% from the second quarter. He said in the coming months, annual inflation rates - which are currently negative in the eurozone area - are projected to turn positive again.[15] BI said: '''Inflation is estimated to keep declining in the medium term to a level equivalent to neighboring countries.''' Citi analyst Johanna Chua said BI reaffirmed its commitment to guarding against inflation, estimating that BI might start raising its rate gradually by as early as March 2010. '''BI now expects Indonesia'''s economy will grow at a higher rate in the fourth quarter than in the third quarter of 2009,''' she said.[18]
Some 1.74 million people were registered as unemployed at the end of October. The Central Statistical Office will release official jobless figures later this month, but those numbers are unlikely to differ from the ministry's data by more than one-tenth of a percentage point. Poland's jobless rate peaked at 20.7 percent in February 2003, as a result of its shift from a communist to market economy.[17] The crown firmed 0.8 percent against the euro after the decision, while rates markets edged 10-15 basis points higher.[26] Three-month euro Libor EUR3MFSR=, also set ahead of the ECB's rate decision, edged higher to 0.67500 percent.[1] The ECB's decision Thursday keeps the rate at a record low even as signs emerge the 16 countries that use the euro are slowly emerging from recession.[47] The December Bund future FGBlc1 briefly hit a fresh session low of 120.93 after the ECB rate decision.[22]
U.S. RATES SET TO STAY LOW Three-month dollar Libor rates USD3MFSR= marked a new low of 0.27531 percent. [1] The dollar and yen were expected to remain under longer-term pressure after the Fed's pledge on low U.S. rates.[35]
Low interest rates should ensure the dollar remains a funding currency in carry trades -- transactions in which investors borrow in low-yielding currencies to buy higher-yielding assets. "I see this as profit-taking and nothing else.[35] "In the very near term a test toward $1.45 is possible, but, as long as the Fed maintains interest rates at historical lows and Wall Street regains a healthy tone, EUR-USD should return on a bullish trend," said Roberto Mialich at UniCredit.[27]
"The very large government borrowing requirements carry the risk of triggering rapid changes in market sentiment, leading to less favorable medium and long-term interest rates. This in turn would dampen private investment and thereby weaken the foundations for a return to sustained growth," said Trichet.[44] If it turned out that for example we would reassess growth in potential output downwards, then the trajectory in interest rates could be different, it would be higher. That is the one (reason) for (stable rates).[26]
The real interest rate is the difference between inflation and benchmark rate. BI'''s language on Wednesday seemed to show '''more optimism on inflation in the short and medium terms,''' they said.[18] Higher interest rates can support a currency as investors transfer funds in search of better returns, which should help the euro.[30] The Fed is expected to keep rates unchanged for months to come and only an improvement in the job market is likely to get it thinking about higher interest rates.[45] 'If you add a spread, the spread must be higher than interest rate expectations,' Schubert warned.[10]
BNP Paribas ( BNPP.PA ), the euro zone's second-biggest bank by market capitalisation, gained 1 percent after it posted higher profits that beat market forecasts and trumped the results of many rival banks. In other financials, Swiss insurer Zurich Financial Services ( ZURN.VX ) lost 3.6 percent after its third-quarter profit missed expectations due to spending on additional hedges. [24] BNP Paribas bucked the weak trend, up 2.3 percent after the euro zone's second-biggest bank by market capitalisation reported forecast-beating profit that trumped the results of many rival banks.[40]
Before Weber's comments, markets expected banks to soak up another 123 billion euros ($181.4 billion) at the 12-month operation, according to Reuters polling. Having flooded markets with 442 billion euros in its first one-year tender in June, similar demand this time would sow potential problems for the future. [10] By 1259 GMT, the euro was flat on the day against the dollar at $1.4867, little changed from before the ECB's decision, which was widely expected.[23] The euro has risen 16 percent against the dollar in the last eight months and about 3.5 percent using the ECB's preferred trade-weighted measure.[14]
The Fed said it "will continue to employ a wide range of tools to promote economic recovery and to preserve price stability." The ECB, by contrast, is pointing to the door and saying, "That's where we're going, follow us." That distinction should be supportive of the euro and higher European bond yields. It also implies that the euro economies are well ahead of the United States on the economic-recovery path - which is bullish for European equities.[34] BRUSSELS — Retail sales in the 16 countries that use the euro dropped by 0.7 percent in September, European Union statistics showed, evidence the economic recovery will be slow and bumpy.[17]
Three dissenters on the seven-strong governing board pushed for a quarter percentage point rate cut, showing the board continued to be split over policy direction in an environment of a slow economic recovery.[20] A bank statement issued after the meeting dropped prior references to a mere stabilisation of eurozone conditions. Trichet nonetheless warned governments that failure to present plans to get their books in order "could seriously risk undermining public confidence in the sustainability of public finances and the economic recovery."[7] Without a clear and credible exit strategy, the sharply rising fiscal imbalances that many euro area governments faced at present could become serious risks for public confidence in the sustainability of public finances and the economic recovery, said Trichet.[44]
The euro cruised to a 14-month high to the dollar in mid-October only to make a speedy retreat as more signs of economic recovery were seen in the United States.[27] SYDNEY (Reuters) - The U.S. dollar held steady on Friday with investors consolidating positions ahead of October non-farm payrolls data due later in the session, a report that would highlight the durability of an economic recovery.[45]
'We appreciate the statements that are made by the Secretary of the Treasury, by the President and the chairman of the Fed, by the U.S. authorities on the fact that a. strong dollar vis-a-vis the euro and vis-a-vis the other major 14 currencies is in the interest of the United States of America,' Trichet said.[14] Jean-Claude Trichet, ECB president, signalled that an offer of unlimited emergency one-year liquidity planned for December would be the last.[49] ECB data have shown that much of the extra liquidity pumped into the banking system still isn't being fully relayed by banks to households and businesses.[31] Banks will not have to pay the money back until the end of next year and economists say the take-up will also impact the ECB's exit plans.[10] There are many signs of green shoots appearing across the economy but money supply growth remains anaemic and until broad money growth increases there will be doubts about the sustainability of the recovery," said Graeme Leach, chief economist at the Institute of Directors.[1] Some economists pointed to positive economic data from October as a sign that the economy was improving, albeit at a slower pace than anticipated. Manufacturing unexpectedly expanded in October at the fastest pace in two years and home values posted their first annual gain in 19 months.[9] The practice is aimed at guiding the economy out of a deep downturn. In the eurozone, of which Britain is not a member, "the latest information continues to signal an improvement in economic activity in the second half of this year", according to the ECB.[7]
Amid growing signs that the euro zone is emerging from recession, financial markets are looking for signs of when and how the ECB will begin winding down an elaborate system of additional monetary stimulus set up over the past year to support the banking system during the credit crisis and economic downturn.[31] The ECB reported last week that private-sector lending in the euro zone contracted for the first time on record in September, as lending eased 0.3% from September 2008.[31]
The idea is to encourage bank lending to businesses so the economy can get moving again.[3] The situation is favourable for the government and the State Bank (since monetary expansion is well under control) but the economy will have to suffer.[32]
European Union commissioner for the economy Joaquin Almunia called last week for coordination on exchange rates between economies to avoid volatility.[27] "People are probably a little cautious ahead of payrolls tomorrow, given how much the dollar's declined in the last couple days," said David Gilmore of Foreign Exchange Analytics in Essex, Conn. The dollar hit its highest point against the euro since mid-October last Thursday at $1.4681. This week, the euro has risen about 2 cents in value against the dollar, moving above $1.49 in European trading before losing ground later in the day.[36] Analysts in a monthly survey said it would not likely budge far from the $1.50 mark for many months, and 33 of 69 said it would hit that level or higher in just three. That compared with 23 of 63 last month. The euro was seen holding its upper hand against the dollar for now, but the survey also showed it would be a long time before the greenback lost any of its stand as the world's leading reserve currency.[27]
Analysts said the market reaction was overdone. "That doesn't mean that by January, February or March that liquidity will be less ample," said Christoph Rieger, Commerzbank rate strategist. "There will still be enough that rates will still be very low at that time. gradually phasing out these measures also does not mean that they will be actively be absorbing liquidity."[1] The vast majority of analysts expect the ECB to start withdrawing generous liquidity supplies before it raises rates, and futures pricing suggests market rates rising in early 2010.[5]
The decision was in line with analysts' forecasts, although markets had partially priced in a rate cut, and the decision pushed the crown currency 0.8 percent stronger firmer.[37] Economists surveyed by Thomson Reuters expect the unemployment rate to rise to 9.9 percent from the 26-year high of 9.8 percent in September.[36]
Low credit demand also is attributed to the euro zone's rising jobless rate, which is keeping down consumer spending.[31] Some politicians and analysts say the strong euro is a threat to future economic growth in the euro zone.[14] Recent economic data in the euro area have generally been positive, although some analysts are concerned that the increase in activity in the second and third quarters might be overly dependent on government stimulus measures, especially for automobile sales.[9]
The Bank of England's move came after last week's surprise news that Britain remained in recession during the third quarter, even as the United States turned to growth. [3] "We are waiting to see if there is going to be a decision from the Bank of England. I think there is unlikely to be any change and I do not think the ECB will make any significant changes," he said.[24] Under a procedure known as quantitative easing, the Bank of England has been buying bonds from commercial institutions in hopes of encouraging lending to businesses and individuals.[7] The Bank of England said it will expand its effort by 25 billion ($41.22 billion) to 200 billion.[39]
On a brighter note, the pace at which banks tightened loan conditions may have come "close to a halt" in the third quarter, the ECB observed in a recent survey. [31] President Felipe Calderon says the economy likely expanded 2.7 percent in the third quarter from the second quarter, although third-quarter gross domestic product figures are forecast to contract 6.4 percent in annual terms.[17] Sales in the EU's largest economy, Germany, fell by 0.5 percent. TOKYO — Japanese stocks retreated ahead of U.S. jobs data, sending the country's benchmark index to its lowest close in a month.[17] Europe's benchmark index, which has surged 52 percent since tumbling to a record low in March, has lost about 5 percent after reaching a one-year high in mid-October.[25] At 1252 GMT, the FTSEurofirst 300.FTEU3 index of top European shares was down 0.3 percent at 979.73 points, after falling to as low as 969.74 points earlier in the session.[25]
Underlining the point, on Thursday the statistics agency Eurostat said the volume of retail trade in the 16-country euro zone fell by 0.7 percent in September from a month earlier.[9] The crown firmed 0.8 percent against the euro following the decision, to trade at 25.84 at 1244 GMT.[19]
"So by the time we get to the second quarter, QE is done and we're on to the next phase which is reversal of QE and rate hikes." [1]
SOURCES
1. MONEY MARKETS-Libor rates mixed as central banks lay out views | Reuters
2. WRAPUP-Top central banks yet to move for exit,some look for door | Reuters
3. The Associated Press: European, British central banks leave rates alone
4. The Associated Press: European, British central banks leave rates alone
5. UPDATE 1-ECB meeting eyed for clues on crisis steps withdrawal | Currencies | Reuters
6. RT' News: ECB leaves main rate unchanged
7. ECB, BoE hold interest rates at record lows
8. ECB keeps main rate steady at 1%
9. Bank of England Adds $40 Billion to Stimulus - DealBook Blog - NYTimes.com
10. ECB FOCUS-One-year cash handout to set tone of ECB exit - Forbes.com
11. European central bank keeps key rate at one percent_English_Xinhua
12. ECB's Trichet signals won't prolong 12-mth operations - Forbes.com
13. Euro hits session highs vs dollar on Trichet comments | Currencies | Reuters
14. ECB's Trichet: steady yuan rise would help world econ - Forbes.com
15. BBC NEWS | Business | Eurozone interest rates unchanged
16. Egypt's cbank keeps interest rates steady | Reuters
17. The Associated Press: A look at economic developments around the globe
18. BI holds rate, optimism on economic recovery | The Jakarta Post
19. UPDATE 2-Czech c.bank holds rates, crown firms - Forbes.com
20. UPDATE 3-Czech c.bank holds rates after tight vote, crown firms - Forbes.com
21. UPDATE 2-Egypt's cbank keeps interest rates steady - Forbes.com
22. Euro steady vs dlr, Bund futures down after ECB | Reuters
23. FOREX-Euro steady after ECB; stg gains after BoE | Reuters
24. Banks push European shares lower; BoE, ECB eyed | Stocks | Reuters
25. Europe stocks trim losses after ECB, BoE decisions | Stocks | Reuters
26. HIGHLIGHTS-Czech c.bankers leave rates flat, some wanted cut - Forbes.com
27. Euro seen close to $1.50 for next six months | Reuters
28. Central banks set path for pullback - The Globe and Mail
29. GLOBAL MARKETS: European Stocks Decline Ahead Of BOE And ECB - WSJ.com
30. Euro lower at $1.4850 in European morning trade - Forbes.com
31. Trichet: ECB To Absorb Extra Liquidity in Timely Way - WSJ.com
32. DAWN.COM | Business | Interest rate cut of 1pc likely by month-end
33. ECB president Jean-Claude Trichet hints at end to emergency liquidity measures - Telegraph
34. ECB is heading for the exits - The Globe and Mail
35. Dollar, yen gain on cautious tone - Nov. 5, 2009
36. The Associated Press: Dollar flat as ECB, BoE leave rates unchanged
37. Czech cbank voted 4-3 to keep rates on hold - Forbes.com
38. Six-month Euribor falls to match main ECB interest rate - Forbes.com
39. Bank of England, ECB Chart Different Courses on Rescue - WSJ.com
40. European stocks slip as banks, miners retreat | Reuters
41. Overnight deposits at ECB stable, bond tally ticks up - Forbes.com
42. ECB buys covered bonds mainly in secondary market in Oct - Forbes.com
43. ECB welcomes new role in new European supervisor - Forbes.com
44. ECB wants euro area governments to implement fiscal exit strategies_English_Xinhua
45. Dollar steadies ahead of October jobs report | Reuters
46. Minister: Indonesia's inflation rate to reach 4%_English_Xinhua
47. The Associated Press: ECB leaves interest rate unchanged at 1 percent
48. MacroScope » Blog Archive » ECB to cash junkies: Get into rehab | Blogs |
49. FT.com / UK - ECB steps closer to gentle exit from loan measures
GENERATE A MULTI-SOURCE SUMMARY ON ANY SUBJECT
Enter your search query below. WAIT 10-20 sec for the new window to open.
Get more info on World's Central Banks Signal End to Policy 'Largesse' by using the iResearch Reporter tool from Power Text Solutions.
 |
|  |
|
