Global mar­kets to fo­cus on ECB credit mea­sures this week

The Pak Banker - - Front Page -

FRANK­FURT: Fi­nan­cial mar­kets will be keen to hear this week if the Euro­pean Cen­tral Bank plans changes to its ex­cep­tional mea­sures to un­der­pin lend­ing amid mixed sig­nals on the global econ­omy.

The ECB's main in­ter­est rate will likely stay locked in at a record low of 1.0 per­cent on Thurs­day as the cen­tral bank re­leases its lat­est fore­casts for growth and in­fla­tion in the 16-nation bloc. The bank "has ab­so­lutely no rea­son to raise in­ter­est rates," Cap­i­tal Eco­nom­ics se­nior Euro­pean econ­o­mist Jen­nifer McKe­own said.

Eu­ro­zone in­fla­tion stood at 1.7 per­cent in July, com­fort­ably be­low the ECB's tar­get of just un­der 2.0 per­cent, and should edge lower in Au­gust ow­ing to cheaper en­ergy costs com­pared with a year ago. The ECB's head­line in­ter­est rate is iden­ti­cal to that of the Bank of Ja­pan, while the Bank of Eng­land's bench­mark rate is 0.50 per­cent and the US Fed­eral Re­serve has kept its Fed funds rate at vir­tu­ally zero.

Back in the eu­ro­zone, al­though Ger­many saw record growth in the sec­ond quar­ter and the re­gion as a whole did bet­ter than Ja­pan or the United States, coun­tries on the pe­riph­ery seemed to be fall­ing be­hind.

The Greek econ­omy con­tracted fur­ther, Por­tuguese and Span­ish re­cov­er­ies re­mained timid and Ire­land's down­graded sov­er­eign credit rat­ing re­minded in­vestors the bat­tle against deficit and debt was not over.

"Debt fears are back in Euro­pean govern­ment bond mar­kets," Bar­clays Cap­i­tal econ­o­mist Thorsten Polleit said.

The price that pe­riph­eral coun­tries must pay to bor­row money has widened again com­pared with bench­mark Ger­man bonds and a con­tro­ver­sial ECB pro­gramme to buy sov­er­eign debt slipped back into low gear last week af­ter com­ing al­most to a halt.

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