FXstreet.com

KBC Flash

This report has been deactivated

6

0

ECB to hold rates steady for some time

Fri, Jul 3 2009, 10:38 GMT
by KBC Market Research Desk

KBC Bank


  • ECB leaves rates unchanged but acknowledges weak economic prospects
  • Statements hit at concerns about worsening jobs outlook
  • Dramatic change needed to force ECB’s hand anytime soon
  • Possibility of more non-standard support in Autumn
  • Rates unlikely to rise before second half of 2010

Today’s decision by the European Central Bank to leave its key policy interest rates unchanged was universally expected. That is not to say that the policy outlook is completely clear cut. Today’s surprise rate cut by the Swedish Riksbank and growing expectations that the Bank of England may step up the scale of its quantitative easing highlight a widely held view that further policy action maybe needed to put economies and financial systems on a healthier path. Clearly, the ECB is mindful of this possibility.

The notable feature of the ECB’s monthly press statement today was the extent to which it remains cautious about the outlook for activity in spite of a continuing improvement in survey-based indicators of late. Mr Trichet was careful to signal that the ECB is likely to remain on hold for some significant time and also said that upside and downside risks both to activity and inflation remain balanced. However, he added once again that the ECB has not entirely ruled out the possibility of further rate cuts. More significantly, the press statement contained some subtle changes from last month that hint at continuing concerns about the Eurozone economy. First of all, the ECB reiterated that the second half of 2009 should see some improvement but today’s indication that activity ‘should decline less strongly’ seems a less confident assertion than June’s observation that activity would decline at ‘much less negative rates’. The ECB also added ‘further increases in oil and other commodity prices’ as a downside risk and highlighted the risk of ‘a stronger or more protracted negative feedback loop between the real economy and the turmoil in financial markets’. This threat may be linked to particular fears about the jobs market. Certainly today’s acknowledgement of the risk posed by ‘increasingly unfavourable labour markets’ strikes a more worried tone than last month’s reference to ‘more unfavourable developments in labour markets’.

It may be that this tweaking owes something to today’s news that unemployment rates in the Eurozone and in the US both jumped to 9.5%. The European figure is the highest since the Spring of 1999 whereas the US number is the worst since 1983. Several recent comments by ECB officials suggest worries that a degree of labour ‘hoarding’ (via short-time working schemes) may be happening in several European countries. In the event of a weaker end to 2009, a further marked rise in unemployment could follow in 2010, with adverse consequences for spending in the economy and the health of the financial system.


Archive

KBC Bank  | Havenlaan 12, 1080 Brussels
http://www.kbc.be/dealingroom | piet.lammens@kbc.be

Legal disclaimer and risk disclosure

This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

Related reports

Interest Rate Monitor - Trichet tempers European rate rally by Interactive Brokers LLC
Fri, Nov 20 2009, 15:10 GMT

Top Fundamental Stories - European Central Bank Jean-Claude Trichet Gradually Exits Stimulus by ecPulse.com
Fri, Nov 20 2009, 14:13 GMT

London Gold Market Report by BullionVault.com
Fri, Nov 20 2009, 13:59 GMT

FX View - Trichet comments spur risk aversion rally by Interactive Brokers LLC
Fri, Nov 20 2009, 13:24 GMT

Friday Notes - Rising inflation rates once again, but no inflationary pressure at all! by UniCredit Group
Fri, Nov 20 2009, 13:03 GMT

ecb, centralbanks, interestrate, eurozone

View All

Related content


Interested in forex trading? forex brokerage firms!


MG Financial Group
Contact the broker/FDM
Open a demo account
ACM Advanced Currency Markets SA
Contact the broker/FDM
Open a demo account
MIG INVESTMENTS SA
Contact the broker/FDM
Open a demo account
Forex Club Financial Company
Contact the broker/FDM
Open a demo account
MF Global FXA Securities Ltd.
Contact the broker/FDM
Open a demo account

GET CASH BACK FOR YOUR TRADES!   Learn more about the Pip Rebate Program

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. FXstreet.com has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.

Any opinions, news, research, analyses, prices or other information contained on this website, by FXstreet.com, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXstreet.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

©2009 "FXstreet.com. The Forex Market" All Rights Reserved.