Thursday, 17 November 2011

Central banks dovish

The Bank of Japan left interest rates unchanged at 0.1 percent on Wednesday as widely expected. It warned that Japan's economy will "face an adverse effect from the slowdown in overseas economies and the appreciation of the yen as well as from the flooding in Thailand".

Somewhat less expected was a signal from China's central bank of a possible end to monetary tightening. From AFP/CAN:

"The People's Bank of China will at an appropriate time and in moderate degree pre-emptively adjust and fine-tune (the monetary policy)," it said in a statement, adding it would do so according to changes in the global economy.

There could also be further monetary easing in the UK after the unemployment rate hit 8.3 percent in the three months to September, the highest in 15 years, and the Bank of England cut its growth and inflation forecasts.

A 0.1 percent fall in consumer prices in October in the US also raises the probability of the Federal Reserve easing monetary policy.

Not that the US economy isn't growing. Other economic reports on Wednesday showed that industrial production grew 0.7 percent in October while the National Association of Home Builders/Wells Fargo housing market index rose 3 points to 20 in November, the highest reading since May 2010.

However, Fitch Ratings warned on Wednesday that US banks could be adversely affected by Europe's debt problem.

Indeed, the debt problem suggests that the European Central Bank itself could ease monetary policy again, notwithstanding the fact that eurozone inflation held at 3.0 percent in October.

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