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 to 0.10
Basic Loan Rate 0.30
UK
Bank Rate 0.5
DENMARK
Lending Rate 1.05
SWEDEN
Repo Rate 1.25
NORWAY
Sight Deposit Rate 2.00
SWITZERLAND
3 Mth LIBOR Target
Range
CANADA
0.0-0.75
Overnight Rate 1.00
Bank Rate 1.25
AUSTRALIA
Cash Rate 4.75
CHINA
1Y Bank Lending
Rate
BRAZIL
5.81%
Selic Overnight Rate 11.25
Date of
Last
Change
-25bp
(7/5/09)
-75bp
(16/12/08)
+25bp
(18/2/10)
-10bp
(5/10/10)
-20bp
(19/12/08)
-50bp
(5/3/09)
-10bp
(14/1/10)
+25bp
(15/12/10)
+25bp
(5/5/10)
-25bp
(12/3/09)
+25bp
(8/9/10)
+25bp
(8/9/10)
+25bp
(2/11/10)
+25bp
(25/12/10)
+50bp
(19/1/11)
Next Change in
Coming 6 Months
No Change
No Change
No Change
No Change
No Change
No Change
No Change
+25bp
(15/2/11)
+25bp
(12/5/11)
No Change
+25bp
(1/6/11)
+25bp
(1/6/11)
No change
+25bp
(Feb 11)
+50bp
(2/3/11)
Source: BNP Paribas
For the full EMK Central Bank Watch please see our Local Markets Mover
Comments
Doubts about the sustainability of the recovery and low inflation
pressures imply no rise in the refinancing rate for a considerable
period of time: we expect the first increase only in H2 2012.
The FOMC is expected to maintain the funds rate at 0 to 0.25%
for an extended period. It will execute its QE2 programme through
H1 2011, with a high probability of an extension through H2 2011.
We expect the BoJ to maintain its overnight call rate at 0 to
0.1% for an extended period. It could well expand its asset
purchase programme, depending mainly on moves in the yen.
Despite sluggish growth, we expect persistent upward surprises
on inflation and rising inflation expectations to provoke an
interest rate hike in Q3 – with the risk of an earlier move.
Higher money market rates in the eurozone are likely to
continue to put pressure on the krone. Thus, further increases in
the interest rate on certificates of deposit are on the agenda.
Strong domestic economic growth should lead to further rate
hikes. We expect the Riksbank to deliver the next rate hike at
February’s meeting.
We expect the Norges Bank to raise rates in Q2 2011. Given the
Bank’s hawkish statement in December, the risk is that the rate
hike comes in Q1 if economic data surprise to the upside and
the krone does not appreciate significantly.
The rally in the franc is delivering a tightening of monetary
conditions independent of SNB policy. The timing of the first hike
remains dependent on exchange rate developments.
In light of developments in global financial markets and the US
economic outlook in particular, the BoC is pausing to allow
further progress in the recovery. Rate hikes should resume in
June 2011, with 75bp of increases delivered by the end of the
year.
The effective cash rate is moderately restrictive while financial
and monetary conditions are outright tight. Below-trend growth
is likely this year, especially given the impact of the Queensland
floods. Underlying inflation is contained, albeit with upside risks.
There is limited need for further tightening in the near term.
Inflation pressure remains strong and the property market
continues to overheat. We thus expect RRR to be hiked to 23% to
slow M2 and lending growth to a 16-17% y/y pace. Further, we
expect at least two 25bp hikes in H1 2011, supplemented by strict
liquidity controls and tight money market rates.
After being on hold since a hike in July 2011, the BCB resumed
hiking in January 2011. In light of a worrisome inflation picture,
the monetary authority is likely to continue tightening monetary
policy in coming months.
Change since our last weekly in bold and italics
Market Economics 20 January 2011
Market Mover
82
www.GlobalMarkets.bnpparibas.com