Market Mover - BNP PARIBAS - Investment Services India

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Central Bank WatchInterest RateEUROZONECurrentRate (%)Minimum Bid Rate 1.50USFed Funds Rate 0 to 0.25Discount Rate 0.75JAPANCall Rate 0 to 0.10Basic Loan Rate 0.30UKBank Rate 0.5DENMARKLending Rate 1.55SWEDENRepo Rate 2.00NORWAYSight Deposit Rate 2.25SWITZERLAND3 Mth LIBOR TargetRangeCANADA0 to 0.25Overnight Rate 1.00Bank Rate 1.25AUSTRALIACash Rate 4.75CHINA1Y Bank LendingRateBRAZIL6.56Selic Overnight Rate 11.50Date ofLastChange+25bp(7/7/11)-75bp(16/12/08)+25bp(18/2/10)-10bp(5/10/10)-20bp(19/12/08)-50bp(5/3/09)+25bp(7/7/11)+25bp(5/7/11)+25bp(12/5/11)-50bp(3/8/11)+25bp(8/9/10)+25bp(8/9/10)+25bp(2/11/10)+25bp(6/7/11)-50bp(19/10/11)Next Change inComing 6 Months-50bp (8/12/11)No ChangeNo ChangeNo ChangeNo ChangeNo Change-50bp (8/12/11)-25bp (16/2/12)+25bp(14/3/12)No Change-25bp (17/1/11)-25bp (17/1/11)-25bp (6/12/11)No Change-50bp(30/11/11)Source: BNP ParibasFor the full EM Central Bank Watch, please see our Local Markets Mover.CommentsThe ECB focused on unconventional measures at its Octobermeeting but left the door open to a future reduction in policy rates.We forecast a 50bp rate cut in December in tandem with the nextround of staff projections.The FOMC is expected to keep the Fed funds rate at 0-0.25%for at least the next couple of years and the Fed launchedOperation Twist in September. In light of the deterioration in thegrowth outlook and financial market conditions, we expect athird round of quantitative easing to be announced at or beforethe end of the year.Economic activity has been picking up steadily on an easing ofthe supply-side constraints caused by the 11 March earthquake.However, should the yen appreciate sharply again, the BoJ mayonce more be forced to ease policy.QE was increased by GBP 75bn in October. We look for anotherGBP 50bn by February.We expect the central bank to deliver a rate cut in line with theECB. But if the krone continues to appreciate, further cuts in theinterest rate on certificates of deposit are likely.We expect the Riksbank to remain on hold this year and delivera rate cut in February, as growth slows and inflation moderates.Due to increased uncertainty regarding the economic outlookand low inflation, the next rate hike is to come in Q1 next year inour view, with a risk of it coming later than Q1.The SNB has implemented a peg to the euro. A minimumexchange rate of 1.20 against the euro will be enforced. The pegis the response to the appreciation of the franc and its risks toprice stability and growth outlook.The BoC has lowered its global and domestic growthexpectations sharply. This suggests that rates will remain low fora long time and that the BoC will probably cut its policy rate ifour expectations of a downturn in the US are realised.With global growth conditions set to deteriorate through to theend of the year and Australian business confidence alreadybelow trend, the RBA is likely to take out some insuranceagainst building downside risks by easing policy in Q4.The deterioration in the global growth outlook has reduced theodds of further rate hikes in China. However, because CPIinflation remains high, the authorities still have an incentive tonarrow the negative gap between the deposit rate and inflationto address a source of social discontent. The impact oneconomic growth should be limited.The central bank is cutting rates, aiming to mitigate the impact ofthe global slowdown on the domestic economy. We foresee afull cutting cycle of 300bp (if not more), with rates down to 9.5%by mid-2012, at a pace of (at least) 50bp per meeting.Change since our last weekly in bold and italicsMarket Economics 27 October 2011Market Mover82www.GlobalMarkets.bnpparibas.com
Economic ForecastsGDPYear 20112012(% y/y) ’11 (1) ’12 (1) ’13 (1) Q1 Q2 Q3 Q4 Q1 Q2 (1) Q3 (1) Q4 (1)US 1.6 0.7 2.4 2.2 1.6 1.6 0.8 0.4 0.5 0.5 1.4Eurozone 1.5 0.7 1.2 2.4 1.6 1.3 0.9 0.3 0.5 0.7 1.3Japan -0.6 1.3 1.1 -1.0 -1.1 -1.0 -0.1 1.0 1.9 1.1 1.1World (2) 3.9 3.3 4.1 4.4 3.9 3.8 3.4 3.1 3.1 3.2 3.7Industrial ProductionYear20112012(% y/y) ’11 (1) ’12 (1) ’13 (1) Q1 Q2 Q3 Q4 Q1 Q2 (1) Q3 (1) Q4 (1)US 3.6 0.7 2.9 5.4 3.7 3.3 1.9 0.2 0.6 0.3 1.7Eurozone 3.0 -0.7 1.6 6.6 4.1 3.0 -0.4 -1.1 -0.9 -0.3 1.8Japan -2.1 3.8 2.5 -2.6 -6.8 -0.4 1.0 3.1 8.0 2.6 1.9Unemployment RateYear2011 2012(%) ’11 (1) ’12 (1) ’13 (1) Q1 Q2 Q3 Q4 Q1 Q2 (1) Q3 (1) Q4 (1)US 9.1 9.2 8.6 8.9 9.1 9.1 9.2 9.2 9.3 9.2 9.2Eurozone 10.1 10.3 10.0 10.0 10.0 10.1 10.2 10.4 10.3 10.3 10.2Japan 4.7 4.6 4.3 4.7 4.6 4.7 4.7 4.7 4.6 4.5 4.5CPIYear20112012(% y/y) ’11 (1) ’12 (1) ’13 (1) Q1 Q2 Q3 Q4 Q1 Q2 (1) Q3 (1) Q4 (1)US 3.2 1.8 1.8 2.1 3.4 3.8 3.4 2.3 1.8 1.5 1.6Eurozone 2.7 1.8 1.7 2.5 2.8 2.7 2.8 2.3 1.7 1.7 1.5Japan (Core) -0.2 -0.3 0.1 -0.8 -0.3 0.2 -0.1 -0.4 -0.4 -0.3 -0.1Current Account(% GDP) ’11 (1) Year’12 (1) ’13 (1) General Government(% GDP)’11 (1) Year’12 (1) ’13 (1)US -3.1 -2.9 -2.5 US (4) -8.5 -9.3 -7.6Eurozone -0.8 -0.6 -0.6 Eurozone -4.1 -3.1 -2.0Japan 2.1 1.3 1.0 Japan -11.1 -8.2 -8.0Interest Rate ForecastsYear20112012(%) ’11 (1) ’12 (1) ’13 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1)USFed Funds Rate 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.253-month Rate 0.35 0.30 0.25 0.30 0.25 0.36 0.35 0.30 0.30 0.30 0.302-year yield 0.20 0.35 0.75 0.83 0.47 0.20 0.20 0.20 0.25 0.30 0.3510-year yield 2.20 3.00 3.25 3.47 3.16 1.72 2.20 2.50 2.60 2.75 3.002y/10y Spread (bp) 200 265 250 264 269 152 200 230 235 245 265EurozoneRefinancing Rate 1.00 1.00 1.00 1.00 1.25 1.50 1.00 1.00 1.00 1.00 1.003-month Rate 1.00 1.10 1.30 1.24 1.55 1.54 1.00 1.00 1.00 1.05 1.102-year yield (5) 0.40 1.00 1.75 1.80 1.61 0.41 0.40 0.50 0.70 0.85 1.0010-year yield (5) 2.00 3.00 3.25 3.35 3.01 1.67 2.00 2.25 2.50 2.75 3.002y/10y Spread (bp) (5) 160 200 150 156 140 127 160 175 180 190 200JapanO/N Call Rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.103-month Rate 0.35 0.35 0.35 0.34 0.33 0.33 0.35 0.35 0.35 0.35 0.352-year yield 0.15 0.20 0.25 0.22 0.17 0.13 0.15 0.15 0.15 0.15 0.2010-year yield 0.90 1.15 1.30 1.26 1.14 0.99 0.90 1.00 1.10 1.10 1.152y/10y Spread (bp) 75 95 105 104 96 85 75 85 95 95 95Footnotes: (1) Forecast (2) BNPP estimates based on country weights in the IMF World Economic Outlook UpdateApril 2011 (3) End Period (4) Fiscal year Figures are y/y percentage change unless otherwise indicated (5) German benchmarkSource: BNP ParibasMarket Economics 27 October 2011Market Mover83www.GlobalMarkets.bnpparibas.com
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Market Economics | Interest Rate St
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ECB to remain active onliquidity me
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The November FOMC meeting is the fi
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further actions to support stronger
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this figure by starting with CoreLo
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While a downgrade would not have a
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Low for longAs a result of the afor
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In September, we estimated 2012 Fre
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a fairly significant change in the
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Japan: Exports Slow on End of Catch
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Japan: Lessons from a ‘Lewis Turn
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durable consumer goods became commo
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Australia: Not Yet• Having been f
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the start of the year, overall cred
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Restrictive lending conditions coul
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