Friday, 3 September 2010

ECB raises growth forecast, Riksbank raises rate

The ECB has raised its economic growth forecasts for the euro area but is taking no chances with monetary policy. Reuters reports on Thursday:

The European Central Bank extended its liquidity safety net for vulnerable euro zone banks into next year, delaying its exit from crisis measures for now as it urged caution about the economic recovery.

The ECB left rates at a record low of 1 percent for the 16th month in a row on Thursday and said policy remained accommodative as the region battles with an uneven recovery and concerns about bank vulnerability.

ECB staff raised economic growth forecasts but President Jean-Claude Trichet said risks were to the downside and the recovery would be moderate with uncertainty prevailing...

Staff see euro zone growth of about 1.6 percent this year, from about 1 percent in June, and about 1.4 percent in 2011, from 1.2 percent.

The quarterly forecasts also showed inflation under control, with consumer price gains seen at about 1.6 percent in 2010 and 1.7 percent in 2011 -- below the bank's 2 percent ceiling.

However, Sweden's Riksbank went ahead with another interest rate hike. Bloomberg reports:

Sweden’s central bank raised its benchmark lending rate for a second time since July as policy makers try to steer the largest Nordic economy through the European Union’s biggest rebound.

The world’s oldest central bank raised the repo rate by a quarter of a percentage point to 0.75 percent, it said today on its website. The decision was expected by 16 of the 21 economists surveyed by Bloomberg. Five had predicted no change.

Continuing mixed data from the US means that central banks will remain cautious about tightening policy. From Bloomberg on Thursday:

Pending sales of existing houses unexpectedly climbed in July from a record low, indicating the real-estate market is steadying following the end of a government tax credit.

The index of purchase contracts rose 5.2 percent after a revised 2.8 percent drop the prior month, figures from the National Association of Realtors showed today in Washington...

The number of Americans seeking jobless benefits fell last week to a level that indicates the labor market has not improved this year. Initial jobless claims dropped by 6,000 to 472,000 in the week ended Aug. 28, the Labor Department said. Applications exceeded the 463,000 average so far this year...

Factory orders rose 0.1 percent in July, less than forecast, restrained by a slump in demand for business equipment, a Commerce Department report showed today. The 0.1 percent rise in bookings followed a 0.6 percent decrease in June.

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