Market Outlook - BNP PARIBAS - Investment Services India

Central Bank Watch
Interest Rate
EUROZONE
Current
Rate
Minimum Bid Rate 1.00
US
Fed Funds Rate 0 to 0.25
Discount Rate 0.50
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 1.75
SWITZERLAND
3 Mth LIBOR Target
Range
CANADA
0.0-0.75
Overnight Rate 0.25
Bank Rate 0.50
AUSTRALIA
Cash Rate 3.75
CHINA
1Y Bank Lending
Rate
BRAZIL
5.31%
Selic Overnight Rate 8.75%
Source: BNP Paribas
Date of Last
Change
-25bp
(7/5/09)
-75bp
(16/12/08)
-75bp
(16/12/08)
-20bp
(19/12/08)
-20bp
(19/12/08)
-50bp
(5/3/09)
-10bp
(14/1/10)
-25bp
(2/7/09)
+25bp
(16/12/09)
-25bp
(12/3/09)
-25bp
(21/4/09)
-25bp
(21/4/09)
+25bp
(1/12/09)
-27bp
(22/12/08)
-50bp
(22/7/09)
Next Change in
Coming 6 Months
No Change
No Change
+25bp
(Mar/May)
No Change
No Change
No Change
-5bp
(Feb/Mar)
No Change
+25bp
(24/3/10)
No Change
No Change
No Change
+25bp
(2/2/10)
+27bp
(Q3)
No Change
Comments
Given excess capacity, underlying inflation should continue to
decelerate, implying that higher policy rates should remain off
the agenda for some time to come.
The FOMC reaffirmed its commitment to purchase USD 1.25trn
of mortgage-backed securities and USD 175bn of agency debt,
and to end its purchases by 31 March. It will also maintain the
funds rate at 0 to 0.25% for an extended period. Extreme
liquidity initiatives will end in the next few weeks foreshadowing
a probable rise in the discount rate.
With the BoJ forecasting negative CPI inflation through H1 of FY
2011, we expect its ultra-low interest rate policy to remain in
place for some time to come.
We expect the MPC to pause the Asset Purchase Facility
purchases at the February meeting.
We expect the lending rate to fall further. The timing will depend
on foreign exchange reserve developments.
The Riksbank is maintaining its cautious stance and intends to
keep the repo rate at 0.25% until autumn 2010. We agree with
this central assessment and expect the first rate hike to be
delivered in Q3 2010.
Given an increase in bank lending rates and an appreciation of
the krone since the last rate hike in December, we believe the
Norges Bank will increase its policy rate further in March.
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 committed to keep rates unchanged until mid-2010,
conditional on the outlook for inflation. While domestic conditions
are stronger than in the US, the BoC is unlikely to begin raising
interest rates well ahead of the Fed.
Strong labour data, the erosion of already limited spare capacity
and underlying inflation above the target range should
encourage the RBA to raise the cash rate at its next meeting.
The latest 50bp RRR hike is likely to mark the beginning of a
series of 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.
The BCB frontloaded monetary easing by cutting rates by
500bp. Given signs of a stabilisation of the Brazilian economy
and an improvement in global conditions, we expect the BCB to
remain on hold for a long period.
Change since our last weekly in bold and italics
For the full EMK Central Bank Watch please see our Local Markets Mover
Market Economics 29 January 2010
Market Mover 68 2 www.GlobalMarkets.bnpparibas.com