The UK inflation rate has declined to 1.6 per cent in March, the lowest since October 2009, giving the Bank of England scope to keep rates on hold at rock-bottom lows despite simmering concerns over a property boom and credit growth.
The consumer price index fall from 1.7 per cent in February was in line with consensus. Month-on-month, inflation slowed to 0.2 per cent, down from 0.5 per cent in February, also in line with economists’ expectations.
The UK economy has finally begun to recover its vim after several years in the doldrums, and the Bank of England is keen to keep nurturing the renaissance by holding interest rates low.
Nonetheless, some investors and analysts are convinced that the strength of the recovery will force the Bank to hike rates – perhaps even as early as this year – which has pushed sterling up higher this year.
Mario Draghi’s hint that the European Central Bank is readying more monetary easing suggests that eurozone policy makers’ next move will take them where no major central bank has gone before: cutting one of its key interest rates below zero.
The ECB president said on Saturday, following the spring meetings of the International Monetary Fund and World Bank, that a strengthening of the euro “requires further monetary stimulus”.
Several officials have said cutting the rate the central bank pays on deposits parked at the ECB below the current level of zero would be their preferred option to tackle the single currency’s appreciation.
Eurozone policy makers hope a decision to join the very select group of central banks that have imposed negative interest rates will make it less attractive for banks and investors to hold euros by, in effect, charging a levy on savings in the single currency.
Mr Draghi’s words came amid demands from the IMF, finance ministers and central bankers gathered in Washington that the eurozone do more to stave off a damaging bout of low inflation, which is now running at just a quarter of the central bank’s target.
A big reason why inflation is so low is the euro’s strength, which makes imports from outside the region less expensive, in turn, lowering price pressures across the bloc. >> Read More
It’s one of those days when investors get to be a fly on the wall at the Federal Reserve’s HQ in Washington – albeit with a three-week delay.
At 2pm on Wednesday, the US central bank releases the minutes of its March 18-19 meeting, the first that Janet Yellen led as chairwoman. Here’s a summary of what to watch for.
How considerable was the discussion of ‘considerable period’?
Ms Yellen triggered a semi-violent sell-off in the US government bond market when she chose to put a time frame of six months on ‘considerable period’ – the deliberately vague language the Fed uses to describe the gap it will leave between the end of quantitative easing and when it raises rates.
With investors confused over whether Yellen made a slip or meant it, the minutes might offer clarity on what others on the Open Market Committee think.
What’s the future of forward guidance? >> Read More
The country’s banking system is well-positioned to cope with the financial impact of the reduction in monetary stimulus by the US Federal Reserve and the resultant rise in interest rates, according to global rating agency Moody’s Investors Service.
“The strengths of the banking systems in India and also in the Asean region are currently underpinned by their relatively strong capital buffers, modest levels of problem loans, high recurrent profitability and low reliance on foreign funding,” Moody’s vice-president and senior credit officer Eugene Tarzimanov said in a note.
The US Fed had on May 24 hinted at withdrawing its third round of quantitative easing, or bond buying programme, worth USD 85 billion each month, which began in the wake of the worst credit crisis in September 2008. However, the Fed started trimming its programme in January.
The Moody’s report, titled ‘Asean and Indian Banks Resilient to US Tapering and Higher Interest Rates,’ noted that compared with other emerging markets, Asean and Indian banks are more resilient to the potential adverse impacts associated with tapering, mostly due to the high economic growth rates in the region, relatively large reserves at the sovereign level, rising income levels and their own good credit fundamentals. >> Read More
The US jobs tally for March has just missed expectations.
The US economy created 192,000 jobs last month, up from 175,000 in February, the Department of Labor said on Friday. Meanwhile, the unemployment rate held at 6.7 per cent.
Economists had forecast a total of 200,000 jobs and an unemployment rate of 6.6 per cent.
Although the unemployment rate has fallen from the post-financial crisis peak of 10 per cent reached in October 2009, Federal Reserve chairwoman Janet Yellen argued last week that the labour market remains too weak.
The state of the jobs market remains central to shaping when – and how quickly – the US central bank will start raising interest rates for the first time since the financial crisis.
From the report:
In March, the number of unemployed persons was essentially unchanged at 10.5 million, and the unemployment rate held at 6.7 percent. Both measures have shown little movement since December 2013. Over the year, the number of unemployed persons and the unemployment rate were down by 1.2 million and 0.8 percentage point, respectively. (See table A-1.)
Among the major worker groups, the unemployment rate for adult women increased to 6.2 percent in March, and the rate for adult men decreased to 6.2 percent. The rates for teenagers (20.9 percent), whites (5.8 percent), blacks (12.4 percent), and Hispanics (7.9 percent) showed little or no change. The jobless rate for Asians was 5.4 percent (not seasonally adjusted), little changed from a year earlier. (See tables A-1, A-2, and A-3.) >> Read More
With the fiscal year coming to an end, most of the data points are predictable, though the final numbers will be out in the next couple of months while the revisions could follow after a year or so. Can we draw a balance sheet of all that has been achieved and lost during the course of the year? In fact, being the terminal year of the government in power, it is normally judged on the most recent performance, in this case, that in FY14. How does the canvas look?
As can be expected, it is a collage of different colours and images indicating a mixed picture. The achievements have been significant given that while the year began on a neutral note, things deteriorated quite fast during May-September. However, the government was able to pull things through and reverse some of these adverse conditions to ensure that we got back to the starting point at least.
Four achievements stand out here. First, the fiscal deficit target has been achieved, and notwithstanding the compromises made, credibility has been restored at a time when virtually all the assumptions made when the Budget was being drafted were trashed as growth slowed down for the second successive year. Bettering the fiscal deficit target by 0.1% of GDP and keeping it at 4.6% was a positive. >> Read More
Germany‘s finance ministry expects borrowing costs to rise next year as the European Central Bank will hike interest rates in response to an economic recovery, Der Spiegel magazine reported on Sunday, citing an internal document.
With the euro zone debt crisis receding and the economy picking up, “an active contribution towards overcoming the low interest rate policy is to be expected” from the ECB, the magazine quoted the ministry document as saying.
The ECB has kept interest rates at a record low of 0.25 percent since November and is expected hold them at that level at its next policy meeting on Thursday.
But the focus of debate in the region has been on whether the ECB will provide more rather than less monetary stimulus – given concern over whether falling rates of euro zoneinflation could usher in an economically damaging period of deflation.
Even if inflation does begin to pick up, the bank has said it would keep rates at the current level or lower well into the recovery. >> Read More
Interest rate hike by the Reserve Bank of India (RBI) in the short-term will push more corporates over the “default cliff”, which can force up to 15 per cent of top 500 companies in severe distress and loan defaults, India Ratings warned today.
“Any further interest rate hike to push corporates over default cliff…any interest rate hike in the next three to six months may wither even the signs of green shoots,” it said, arguing for rates to be kept on hold till September.
RBI is scheduled to announce monetary policy on Tuesday. It is widely believed that the central bank is likely to leave the rates unchanged as the core inflation remains sticky, even though overall inflation rates have been trending down.
The report said a rate hike of either 0.25 to 0.50 per cent by RBI in the next two quarters will push the number of stressed companies in the BSE-500 companies by 14-15 per cent.
The credit rating agency said its analysis of BSE-500 companies suggests that the stress on the balance sheet debt will grow to 16 per cent in case of rate hike from the 15 per cent in December last. >> Read More
International Monetary Fund executive director Rakesh Mohan says:
- Investors need to adjust their expectations on interest rates and expect them to start increasing around the world in the years ahead.
- Speaking at the Credit Suisse Asian Investment Conference in Hong Kong
- Last week’s change of interest rate guidance by United States Federal Reserve chair Janet Yellen was just the start of the story of more central banks lifting rates over the next three to five years as global growth improves.
- “This just the beginning,” he said, adding that at some point Japan, Europe and the United Kingdom needed to “come to the table.”
China’s central bank will focus on liberalising bank deposit rates over the next two years, while loosening its grip on the yuan currency to give greater influence to market forces, a vice governor of the People’s Bank of China said on Saturday.
“Our priority this year and next year is pushing forward reform of bank deposit rates,” Yi Gang told an economic forum in Beijing.
The central bank will relax control of interest rates on a wide range of fixed-income products and bank deposits, Yi said, adding there would be “substantial progress” ahead.
Central bank chief Zhou Xiaochuan said earlier this month deposit rates were likely to be liberalised in one to two years, but government economists and policy advisers told Reuters they believed the central bank was treading cautiously as economic growth slows.
The central bank already allows banks to set their own lending rates, but in practice they do not have full freedom because of controls on deposit rates. >> Read More