Market Economics | Interest Rate Strategy - BNP PARIBAS ...

Central Bank Watch
Interest Rate
EUROZONE
Current
Rate (%)
Minimum Bid Rate 1.00
US
Fed Funds Rate 0 to 0.25
Discount Rate 0.75
JAPAN
Call Rate 0.10
Basic Loan Rate 0.30
UK
Bank Rate 0.5
DENMARK
Lending Rate 1.05
SWEDEN
Repo Rate 0.25
NORWAY
Sight Deposit Rate 2.00
SWITZERLAND
3 Mth LIBOR Target
Range
CANADA
0.0-0.75
Overnight Rate 0.25
Bank Rate 0.50
AUSTRALIA
Cash Rate 4.25
CHINA
1Y Bank Lending
Rate
BRAZIL
5.31%
Selic Overnight Rate 9.50
Source: BNP Paribas
Date of Last
Change
-25bp
(7/5/09)
-75bp
(16/12/08)
+25bp
(18/2/10)
-20bp
(19/12/08)
-20bp
(19/12/08)
-50bp
(5/3/09)
-10bp
(14/1/10)
-25bp
(2/7/09)
+25bp
(5/5/09)
-25bp
(12/3/09)
-25bp
(21/4/09)
-25bp
(21/4/09)
+25bp
(6/04/09)
-27bp
(22/12/08)
+75bp
(28/4/10)
Next Change in
Coming 6 Months
No Change
No Change
No Change
No Change
No Change
No Change
-5bp
(May)
+25bp
(1/7/10)
+25bp
(22/9/10)
+25bp
(Sep)
+25bp
(1/6/10)
+25bp
(1/6/10)
+25bp
(4/5/10)
+27bp
(Q3)
+75bp
(9/6/10)
Comments
The combination of an insipid economic recovery and low inflation
points to no conventional tightening, i.e. refi rate hikes, in 2010.
The FOMC should maintain the funds rate at 0 to 0.25% for an
extended period and will probably keep the discount rate where
it is for now.
The BoJ could expand its liquidity provisions further in order to
cooperate with the government in countering deflation and the
yen’s appreciation.
We expect the MPC to reengage in asset purchases from
August onwards.
We expect the lending rate to fall further. The timing will depend
on the krone and foreign exchange reserve developments.
The Riksbank still intends to deliver its first hike in the summer
or early autumn. We expect it in July. However, the Riksbank
could wait until September if downside risks to foreign trade
materialise, the krona appreciates more than expected and/or
concerns about the fiscal situation in high-debt countries rise.
We expect the next rate hike to be delivered in September,
depending on economic developments, the krone and the level
of uncertainty surrounding the Norwegian economic outlook due
to developments in Europe.
By relaxing its commitment to prevent currency appreciation, the
SNB is de facto tightening policy and has kept the ball rolling
towards an eventual increase in rates. The strong franc remains
the biggest hurdle to the first hike.
The BoC has removed its conditional commitment and noted
that “it is appropriate to begin to lessen the degree of monetary
stimulus”. We expect the BoC to begin tightening in June and to
deliver 125bp of hikes before pausing to reassess the situation.
The RBA is aiming to take the policy rate to an average level,
which we view to be 4.50%. The next hike should come in May
after which a pause is likely to assess the impact of policy
tightening delivered thus far.
The latest RRR hikes are likely to presage a series of more
concrete measures to tighten policy. The first hike in key policy
rates is expected in Q3 when the CPI rate is forecast to exceed
3%. However, given the authorities' rising caution about excess
credit, an earlier move cannot be ruled out.
Given the robust recovery in domestic demand and deterioration
of inflation expectations, the BCB should continue to tighten
monetary conditions.
Change since our last weekly in bold and italics
For the full EMK Central Bank Watch please see our Local Markets Mover
Market Economics 7 May 2010
Market Mover
81
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