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 0.50
NORWAY
Sight Deposit Rate 2.00
SWITZERLAND
3 Mth LIBOR Target
Range
CANADA
0.0-0.75
Overnight Rate 0.50
Bank Rate 0.75
AUSTRALIA
Cash Rate 4.50
CHINA
1Y Bank Lending
Rate
BRAZIL
5.31%
Selic Overnight Rate 10.25
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
(1/7/10)
+25bp
(5/5/09)
-25bp
(12/3/09)
+25bp
(1/6/10)
+25bp
(1/6/10)
+25bp
(5/5/10)
-27bp
(22/12/08)
+75bp
(09/6/10)
Source: BNP Paribas
Next Change in
Coming 6 Months
No Change
No Change
No Change
No Change
No Change
No Change
No Change
+25bp
(2/9/10)
+25bp
(15/12/10)
No Change
+25bp
(20/7/10)
+25bp
(20/7/10)
+25bp
(2/11/10)
No Change
+75bp
(21/7/10)
Comments
The uneven, lacklustre recovery and low inflation pressures imply
no rise in the refinancing rate for a considerable period of time.
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 provision 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 central bank to draw on its FX reserves to defend
the currency, given the recent up-tick in EUR/DKK. If this proves
unsuccessful, policy rates will likely be raised.
Given strong domestic demand, increases in employment and
re-accelaration in house prices, we expect the Riksbank to
deliver its second rate hike in this cycle in September.
Weaker-than-expected growth since the start of the year and
uncertainty over Norway’s economic outlook due to
developments elsewhere in Europe suggest further rate hikes
will come gradually. We expect the next hike in December.
Rates are looking inappropriate given the strength of the
domestic economy. But we expect the first hike to be delayed to
early 2011 by an intensification of the fiscal and financial stress
in the markets over the coming months.
Barring a re-intensification of global financial troubles, we expect
the BoC to deliver an additional 0.75bp of tightening over H2
2010. The BoC is then expected to pause at 1.25% to re-assess
the situation.
The RBA noted in its June statement that policy was appropriate
for the “near term”. This appears to rule out any move in the
coming months, especially in the context of volatility in global
markets. However, likely strong Q2 growth should be enough to
prompt a hike late in the year.
Significant monetary tightening has slowed credit growth and
boosted money market rates while both economic growth and
inflation are decelerating; the eurozone sovereign crisis is
further clouding the export outlook. As all these factors call for
policy flexibility, we no longer expect further hikes in the RRR or
any interest rate hikes in 2010.
Given the robust recovery in domestic demand, the very low
level of economic slack, still-elevated inflation expectations and
relatively loose fiscal policy, the BCB should continue to tighten
monetary conditions with bold hikes.
Change since our last weekly in bold and italics
For the full EMK Central Bank Watch please see our Local Markets Mover
Market Economics 16 July 2010
Market Mover
67
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