BoE cuts, ECB moving closer too

The hawks are still flying east.

The Bank of England cut rates yesterday, much as most economists had expected. It lowered its key rate by a quarter percentage point to 5.25 percent.

The more interesting development was with the European Central Bank. Reuters reports:

The European Central Bank left interest rates on hold on Thursday and markets spied more scope for rate cuts this year after President Jean-Claude Trichet stressed the risk of slower growth alongside inflation pressures.

Unlike the last two meetings, policymakers did not discuss raising rates and although they did not consider a rate cut either, markets and analysts saw the ECB opening the door to reducing its benchmark from the current six-year high of 4 percent by mid-year...

A Reuters poll showed most economists still expect a 25 basis point cut to 3.75 percent by June, unchanged from last week, but analysts brought forward the timing of a second cut to the third quarter from the fourth. They gave a 66 percent chance of a rate cut by mid-year, compared to 55 percent last week, and 85 percent of a cut by year-end, from 75 percent.

Meanwhile, the Czech central bank proved more hawkish, following its Romanian counterpart's one-percent move on Monday with a quarter-point hike of its own yesterday. In between, on Tuesday, Australia had also hiked rates by 25 basis points.

The world may be round but some strays notwithstanding, the hawks are not likely to make more than token appearance out in the far west in the US, where data yesterday confirmed ongoing economic weakness, as Reuters reports.

Pending sales of previously owned homes fell by 1.5 percent in December and were off a sharp 24 percent from a year ago, the National Association of Realtors said.

Separately, the Labor Department said new claims for unemployment aid edged down from a two-year high last week, but the number of workers remaining on the benefit rolls has hit a level not seen since October 2005 in the aftermath of Hurricane Katrina.

On the retail front, a spate of reports from key chain stores like Wal-Mart Stores Inc and Target Corp showed consumers have pulled back on spending. Sales in January were below expectations and were down at some key retailers.