Archive for February, 2008
(When) Will the ECB Cut Rates?
Although the Federal Reserve has cut rates by 225 basis points since September, the European Central Bank (ECB) has kept its main policy rate unchanged at 4.00% since last tightening policy in June. Although the fallout from the subprime mortgage debacle is dimming the outlook for growth and leading to volatility in most financial markets, ECB policymakers have maintained that the primary risk to the Euro-zone outlook is inflation rather than sub-par growth. As Exhibit 1 makes clear, CPI
Comments are off for this post
ECB: Moving closer - but not there yet!
We are moving towards our first expected ECB cut. We now expect a cut at the June meeting followed by additional easing of monetary policy in September and December. This will take the refi rate from the present 4% to 3.25% in 12 monthsÂ’ time. Weaker Euroland data, a worsening of the outlook for the US economy, increasing risks and the surprisingly soft tone from the ECB are the main reasons behind our altered view. Strong forces point in opposite directions and it will take some time to sway
Comments are off for this post
Euro Vulnerable to Renewed Losses
Renewed worries on the German banking front are keeping European stocks in the red and lending further support to the Japanese currency on reduced risk appetite. Germany ’s IKB drops 20% on worries that will announce further write-downs of as much as 2 billion euros according to Reuters. Euro shrugs the news for now, regaining the 1.4550s but we warn of renewed selling tomorrow at the crucial release of the ZEW sentiment survey, which will reflect responses in the aftermath of the Societe
Comments are off for this post
Czech Republic: Another hike despite a strong CZK
In line with our expectations, the Czech central bank yesterday decided to lift its leading rate by a further 25bp, thereby bringing it to 3.75%. The Czech central bank board voted 5-2 to raise interest rates despite the fact that a strongly performing Czech koruna (CZK) had already brought monetary tightening, according to central bank governor, Mr Tuma.
Comments are off for this post
ECB more dovish than expected
Overview : The ECB yesterday kept rates unchanged as expected at 4.0%. In the press conference afterwards, the ECB softened its tone on growth putting more emphasis on the downside risks to growth. We had expected a move in this direction but the ECB softened more than we expected. While still sounding hawkish on inflation, with this move the ECB effectively went on a neutral bias, taking a rate hike off the table. The ECB also emphasised the high degree of uncertainty, and in this way gave
Comments are off for this post
Monetary-policy meeting at the ECB
Interest-rate announcement Current interest rate level: 4.00% • In favour of unchanged interest rates: • The ECB has recently indicated higher interest rates • The economic indicators cannot justify an interest-rate cut • The risk of inflation is still on the upside • In favour of 25bp cut: • General expectations in the market of a softening from the ECB • Weak PMI figures this week • Slowdown in economic growth in the US
Comments are off for this post
ECB: Preview of meeting on 7 February
The ECB is being challenged by softer activity data and the highest inflation rate in 14 years. We think that the ECB will remain in a “wait and see” mode on Thursday with an unchanged bias toward rate hikes in order to send a clear signal to wage negotiators in Germany. However, the market will focus on any signs that the ECB may be changing its growth assessment and whether a hike was discussed as it had been at the previous meetings. We recommend being neutral into the meeting.
Comments are off for this post
Romania: Prudent central bank does the right thing
Today the Romanian central bank (NBR) responded to the recent weakening of the Romanian leu by hiking its key policy rate by 100bp to 9.0%. The hike was more aggressive than the consensus expectation and our expectation of a 50bp rate hike. That said, the hike is not overly surprising given the rising inflationary pressures at the NBR.
Comments are off for this post
Russia: Inflation concerns prompted monetary tightening
On Friday, the Russian central bank (CBR) decided to tighten up monetary conditions as a response to building inflationary pressures amid a period of rapidly rising domestic demand. The timing of the action comes as no big surprise, as the liquidity situation in the Russian money market in general has improved over the last couple of months, whereas inflationary pressures are still building.
Comments are off for this post