Global rates moves signal tightening cycle near end
Written on September 4, 2008
A raft of central bank interest rate decisions on Thursday reinforced investor opinion that the international rates cycle had peaked, with growth risks starting to outweigh the inflation worries of policymakers.
The European Central and Bank of England both held interest rates steady while Sweden’s Riksbank and Indonesia’s central bank both raised rates by 25 basis points in moves that analysts said were likely to be their last upward tweaks in 2008.
ECB President Jean-Claude Trichet said economic data pointed to weakening growth at mid-year while inflation remained high and risks were to the upside — a picture analysts say is increasingly familiar in economies around the world and which left the ECB little option but to leave rates unchanged.
New ECB staff economic projections showed an increase in inflation forecasts and a cut in growth expectations compared with their last prognosis three months ago.
“The ECB just raised rates two months ago, so there is no way they could have cut rates now. And to raise with the economy slowing faster than they expected when they raised rates in July would make no sense either,” Bank of America economist Holger Schmieding said get a free credit report.
Euro zone inflation at 3.8 percent in August is roughly twice the 2.0 percent level the ECB is comfortable with, while economic growth in the second quarter of the year showed its first quarterly contraction in the currency bloc’s history, shrinking by 0.2 percent as investment and consumption fell
The BoE’s decision to leave rates on hold for a fifth month running did nothing to douse expectations that recession worries could prompt a cut before the end the year ID:nL4343600.
“You could say that global tightening is coming to an end. Most central banks will use the excuse of slightly weaker growth and a turning point in inflation to stop raising rates,” said Robert Prior-Wandesforde, an economist at HSBC in Singapore.
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