Archive for February, 2009
Hungary: Base rate announcement
Central bank kept the base rate on hold (9.50%) As expected, the central bank kept the base rate on hold (9.50%) at its todayās rate setting meeting. The statement of the council does not contain many surprises, saying that growth outlook in Hungary has deteriorated more than previously expected, due to the worsening of the global economic environment. Thus, a recovery of exports cannot be expected before 2010. On the other hand tighter credit conditions would decrease lending activity,
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UK: BoE not going to zero - but will print money
Overview: Following the minutes from The Bank of England (BoE) this week we no longer expect the BoE to cut all the way to zero, but instead to stop at 0.5% in March. However, we now expect it to embark on quantitative easing in the near future. Details: There were two particularly interesting points in the minutes from the latest Bank of England meeting out this week. First, the BoE made it clear that it saw it as necessary to embark on quantitative easing in order to get inflation back
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Turkey: Aggressive cut could spark lira weakness
The Turkish central bank (TCMB) cut its key policy rate (the borrowing rate) by a whopping 150bp to 11.50% and its less important lending rate by 150bp to 14.00%. The bankĀs decision was more aggressive than our expectation of a 100bp cut and the consensus expectation of a 50bp cut. The borrowing rate has now been lowered by 525bp since November from 16.75% to 11.50%. Even though aggressive rate cuts can be justified on macroeconomic grounds and lower inflation, we would still argue that the
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BOE may soon adopt quantitative ease
The Bank of England cut interest rates 50 bps to 1% on February 5th. Bank of England interest rates are at a record low and a deteriorating UK economy increases the risk of deflation in the UK. Because the Bank of England cannot lower interest rates much further and prior rate cuts have done little to boost growth, the Bank of England says unconventional policy is needed to fight deflation. The Bank of England expects UK inflation to fall well below its target of 2%. The Bank of England may
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Japan: BoJ to start purchasing corporate bonds
As widely expected, the Bank of Japan (BoJ) left its leading O/N target rate unchanged at 0.1% in a unanimous decision. In addition, it announced it will start purchasing corporate bonds and extended most of its existing programmes to ease corporate finance conditions and liquidity in financial markets. At the press briefing, Board Governor Shirakawa said that cutting its leading interest rates to zero was not even discussed at this week's meeting, indicating that a cut in the O/N target rate
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FOMC Minutes January 27-28, 2009
Downside risks to growth intensified FOMC discussed additional measures to boost recovery We expect interest rates to remain unchanged FOMC viewed credit conditions as extremely tight, āwith financial markets fragile and some parts of the banking sector under substantial stress.ā Yet, FOMC highlighted signs of recovery in markets receiving relief from the different liquidity facilities. Staff revised downwards its forecast for 1H09, as weaker-thanexpected economic releases more than
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BoJ preview: Unconventional easing to be stepped up
The Bank of Japan (BoJ) has today started its two-day monetary meeting and will announce its interest rate decision early tomorrow morning. ā¢ Despite the recent dismal economic indicators, we expect BoJ to leave its leading O/N target rate unchanged at 0.1%. Most BoJ board members believe that cutting the O/N interest all the way to zero will disrupt the good functioning of the money markets. Hence, in our opinion, BoJ is unlikely to cut its O/N target rate further. O/N forward interest rates
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Czech Republic: Weak CZK closes door for further aggressive rate cuts
The recent sharp weakening of the Czech currency - the Czech koruna (CZK) - has provoked some of the Czech central bank's (CNB) board members to intervene verbally in an attempt to stop the freefall of the CZK amid financial meltdown of all Central and Eastern European currencies on the back of concerns over the state of CEE economies and markets. Furthermore, these comments are very much in line with our views communicated last week in New Europe Weekly, Week 8 and in yesterday's Flash
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Euroland: ECB expected to reach 1% by summer
Overview: Due to a softer rhetoric from the ECB lately and the more downbeat outlook for the Euroland economy, we are revising down our forecast for ECB rates. We now see the end point at 1.0% rather than 1.5%. We continue to look for a 50bp easing at the March meeting but now expect the ECB to ease by a further 25bp in April and 25bp in June. This leaves scope for a further decline in two-year bond yields.
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Nominal Retail sales rose 1.0% in January, the first gain since June last summer
In the 18 months since August 2007 nominal retail sales have been positive half the time and negative half the time. In the most recent nine months six have been negative and three positive. For the first nine months of the last 18 the ratio is reversed seven months are positive and two negative. It was the acute phase of the financial crisis which struck last September, as depicted in the nominal retail sales numbers that hit consumer spending hard. Retail sales numbers prior to last
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