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Market Wire Update:
Oldest Central Bank Holds Rates
Put six economists on a committee, and you’ll get six opinions. That is what Larry Greenberg of CurrencyThoughts.com says. "It was almost like that at the latest policy meeting of the Riksbank Executive Board," Greenberg said.
"The meeting revealed that the oldest central bank in the world, and one of the most respected, would retained a 0.25% repo rate as it did at the prior meeting in early September. They projected growth of 2.5% next year and 3.4% in 2011, and projected core CPI inflation of 1.3% next year, 1.9% in 2011, and 2.1% in 2012 versus a 2.0% target" said Greegberg.
The bank profiled a future path for the repo rate that embodies no change until 4Q10 at the earliest, a rate of 2.4% late in 2011, and 4% near the end of 2012, and offered further quantitative easing, namely another SEK 100 billion of loans to banks at a fixed rate for nearly a year.
"Only two of the Board’s six members were totally satisfied with all elements of the decision" said Greenberg. "One preferred a repo rate of zero until 3Q10. Another member agreed with the forecasts and rate decision but objected to continuing the loans. Two others were more optimistic about future growth and sought to begin raising interest rates sooner than the group’s decision," he added.
A statement from the central bank felt Sweden’s recession following a very severe recession would need a lot of nourishing. "Financial markets may be better but are not back to normal. It will take a bit of time before the recovery is a sound one.
"The repo rate had been at 4.75% at the end of 3Q08 but was cut by 275 basis points in three moves during 4Q08, reduced once further in the first quarter of this year by 100 basis points, once in the second quarter by 50 basis points and one final time at the start of 3Q09 by 25 basis points" added Greenberg. The krona is 2.1% weaker against the euro than a year ago.
CurrencyThoughts is a stand-alone independent advisory service that integrates all global financial markets and the macroeconomic trends that make them tick.