The Bank of Japan said Wednesday it will inject 2 trillion yen in one-year funds through a lending facility under which the central bank will provide banks with loans against pooled collateral at a fixed interest rate.

The fund-supplying operation, which begins Friday and ends on May 16, 2014, will be the BOJ’s first with a one-year fixed rate since April 16.

The BOJ is conducting the operation to address the sharp rise in longer-term interest rates.

The Bank of Korea just unexpectedly cut its key interest rate to 2.5% fom 2.75%.

This is pretty remarkable, considering that market economists have already been surprised by two other central bank rate cuts this week.

On Monday, the Reserve Bank of Australia unexpectedly lowered its key interest rate to 2.75% from 3%.

Earlier Wednesday, the National Bank of Poland unexpectedly cut its key interest rate to 3% from 3.25%.

These three surprise rate cuts come follow two rate cuts made last week – the ECB cut to 0.5% from 0.75% on Thursday, and the Reserve Bank of India cut to 7.3% from from 7.5% on Friday.

Global growth slowdown, currency wars, etc. – call it whatever you want, but it’s really getting going now.

While the ECB’s refinancing rate cut of 25 bps was very much expected, and just took place pushing the main refi rate to a record low 0.50% (because more liquidity is just what Europe’s collapsing economy needs), what was unanticipated was that the Marginal Lending Facility (which last time we checked was used by pretty much nobody) was also cut, from 1.5% to 1.0%. The deposit rate, at 0.00%, was obviously left unchanged.

From the ECB:

 

At today’s meeting, which was held in Bratislava, the Governing Council of the ECB took the following monetary policy decisions:

1. The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.50%, starting from the operation to be settled on 8 May 2013.
2. The interest rate on the marginal lending facility will be decreased by 50 basis points to 1.00%, with effect from 8 May 2013.
3. The interest rate on the deposit facility will remain unchanged at 0.00%.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

Now the question is whether Draghi will engage in non-standard measures to facilitate lending for SMEs. For this, tune in to the press conference in 45 minutes.

The ECB has its monthly meeting tomorrow, and there’s a pretty big consensus growing that it’s going to do some kind of rate cut.

 Inflation has fallen to 1.2%, and unemployment is up to 12.1%. This situation demands a policy response. Even the famously tight ECB is likely to see the merits of easing in this situation.

In a note put out yesterday, Lorcan Roche Kelly of Trend Macrolytics has a slightly contrarian take on what the ECB should do tomorrow. First of all, he does think there will be a rate cut, whereas previously he was skeptical.

BUT, he argues that a rate cut isn’t the right tool for the job, and won’t accomplish anything because of how broken everything is. Instead, the ECB needs to open up new channels to extend credit to Small and Medium Sized Enterprises, especially in the periphery where traditional monetary policy channels are impaired.

For a broad example of what the ECB could do that would actually be effective, he writes: >> Read More

• Nowotny said its too early for the ECB  to decide that an interest rate cut is needed
• Also that the impact of Japan’s easing must be closely monitored

“It’s still too early. In Europe, we have very expansionary monetary policy and it is too early to judge if further steps should be taken,”

On Japan and the yen:

you have to say that it is a very bold experiment. As far as the exchange rate goes (against the yen), we are at the same level we were two years ago. That means I don’t see any massive threat to Europe

• But it needs to be monitored closely

• latest report from the leading German economic institutes cuts 2013 GDP forecast to +0.8% from 1% prev
• 2014 GDP +1.9%
• HICP +1.9% 2013  +2.1% 2014
• not in favour of ECB interest rate cut as it would delay structural adjustments in banking sector
• says Europe should aim to move its banking supervisory body away from ECB

The full story on Weidmann is out in the WSJ:

Many analysts expect that with inflation below the ECB’s 2% target, at 1.7%, and expected to fall further, an interest-rate cut is likely in May or June. Mr. Weidmann didn’t rule out the prospect, but cast doubt that it would do much good.

“We might adjust in response to new information,” however, “I don’t think that the monetary policy stance is the key issue,” he said.

It’s more tentative than the initial headline suggested but it certainly leaves the door open. It’s implied (but unclear) that it was in response to a question about a cut specifically in May or June. >> Read More

As expected, no changes in any of the three key rates from the ECB.

  

4 April 2013 – Monetary policy decisions

 

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.

 

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

More important will be the press conference starting at 8:30 am Eastern, where Draghi will field questions on the ECB’s non-intervention in light of the conditions it imposed most recently in Cyprus, the legal term-sheet status of the OMT, the latest relapse into recession by Europe, and more. Note: we said questions, not answers.

Reuters is reporting that Spain sold more sovereign debt than it expected at a bond auction today, getting away €4.3bn of bonds compared with the anticipated €3bn to €4bn. The yields – or interest rate payments – were at similar levels to recent auctions.

France posted a dire set of services PMIs for March today, coming in at 41.3 and further underlining the country’s economic divergence from Germany. Nonetheless, France sold nearly €7bn worth of sovereign debt this morning – at the upper echelons of expectations. According to Adam Parry at International Financing Review:

Once again, the French primary dealers did their usual efficient job of placing auction paper with domestic accounts, ensuring a solid set of results despite those awful PMI numbers.

• PBOC q1 monetary policy meeting
• says inflation basically stable but warn on uncertain outlook
• PBOC will guide steady moderate credit growth. reiterates prudent monetary policy stance
• interest rate differential will still attract speculative inflows
• reiterates “basically stable” yuan fx rate pledge