Wednesday, 15 June 2011

BoJ expands lending programme, PBC raises reserve requirement

The Bank of Japan announced another measure to support the economy on Tuesday. AFP/CNA reports:

The Bank of Japan on Tuesday said it would expand a programme of lending to companies in growth areas with a new US$6 billion credit line to support the post-quake economy.

The BoJ's policy panel voted unanimously after a two-day meeting to keep its key rate unchanged between zero and 0.1 percent, and expand last June's 3 trillion yen (US$37.4 billion) lending facility to encourage banks to channel funds into sectors such as renewable energy and medicine.

The central bank will offer a new credit line of up to 500 billion yen under a new facility designed to make it easier for smaller firms to access cash from banks without using traditional real estate collateral.

There was some more bad news in Japan on Tuesday.

Sentiment among large Japanese companies tumbled to its lowest in two years during April-June, a government survey showed Tuesday, after the impact of the March 11 disasters.

The index measuring the mood among big companies stood at minus 22.0 in the second quarter compared with minus 1.1 in the previous three months, a joint survey by the Finance Ministry and the Cabinet Office showed.

But the BoJ does not seem overly concerned.

The central bank also slightly upgraded its assessment of the economy, which "continues to face downward pressure, mainly on the production side due to the effects of the earthquake disaster but is showing some signs of picking up".

The BoJ said the Japanese economy was likely to return to "a moderate recovery path" in the second half of the year.

Indeed, the economy has already shown signs of recovery from the earthquake disruptions. Reuters reports:

Japan's industrial output rose 1.6 percent in April, revised data showed on Tuesday, suggesting that factory activity is picking up after the previous month's record fall due to a massive earthquake and tsunami that struck on March 11.

In contrast to Japan, China's policy-makers must be wishing its economy has slowed more. From AFP/CNA:

China said on Tuesday that its politically sensitive inflation rate hit its highest level in nearly three years in May, prompting Beijing to order banks to increase the amount of money they keep in reserve.

China has been battling to contain inflation, which jumped to 5.5 percent year-on-year in May -- far above the official annual target of 4.0 percent -- as food prices soared on power shortages and crippling droughts in some areas.

It was the highest rate since July 2008, when the index rose 6.3 percent...

The People's Bank of China said after the data release that it would increase the reserve requirement ratio by 50 basis points, effectively limiting the amount of money banks can lend, in the latest move to tame consumer costs...

Output from the country's thousands of workshops and factories rose 13.3 percent from a year earlier in May, slightly slower than the 13.4 percent in April amid electricity shortages and a government clampdown on bank lending.

Fixed-asset investment for the January-May period rose 25.8 percent on year, up from 25.4 percent in the first four months of the year.

Retail sales rose 16.9 percent year-on-year in May.

India is also experiencing high inflation, report AFP/CNA:

India's annual inflation accelerated above market forecasts to 9.06 percent in May, official data showed on Tuesday, increasing pressure on the central bank to raise interest rates further.

The rise in the wholesale price index -- the government's preferred measure of the cost of living -- was lower in April at a provisional 8.66 percent, the ministry of commerce said.

But the UK's trend of higher-than-expected inflation appears to have come to an end. Reuters reports:

Inflation in Britain held at a 2-1/2 year high in May as food prices rose, squeezing Britons' finances and leaving rate-setters stuck firmly with the dilemma of how to tackle soaring prices while the economy is weak.

The Office for National Statistics said consumer prices rose 0.2 percent last month keeping the annual inflation rate at 4.5 percent, as expected. Rising food prices offset a drop in travel costs, as airfares dropped after the Easter holiday.

High inflation did not stop UK consumer sentiment from improving in May though. From Reuters:

Consumer confidence enjoyed one of its biggest jumps on record last month, a survey showed on Wednesday, providing a glimmer of hope that the recovery may get back on track.

Nationwide Building Society said its consumer confidence index rose to 55 in May from an upwardly revised 44 in April, moving further away from the all-time low of 40 hit in February.

The 11 point rise mirrors a similar jump in GfK NOP's May confidence survey, and suggests unusually warm weather and a succession of bank holidays boosted consumer morale.

Inflation has also not held back US consumer spending much. From Bloomberg:

Sales at U.S. retailers fell less than projected in May, showing consumers were weathering elevated gasoline costs.

The 0.2 percent decrease reported by the Commerce Department in Washington today compared with the median forecast for a 0.5 percent drop in a Bloomberg News survey of economists. Excluding the biggest slide in auto sales in more than a year, purchases climbed 0.3 percent. Another report showed wholesale costs rose last month...

The increase in wholesale costs last month was led by higher prices for fuel and plastic products, according to the Labor Department. The 0.2 percent increase in the producer-price index followed a 0.8 percent advance in April...

Another report today showed that business inventories rose in April as sales cooled. The 0.8 percent advance in stockpiles followed a 1.3 percent increase in the prior month and compared with a 0.9 percent rise that was the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed today in Washington.

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