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