European shares get lift from BOJ’s rate move

LONDON: European equities bounced back yesterday, tracking a rally in Asia after the Bank of Japan stunned the markets by voting narrowly to introduce negative interest rates in a bid to revive inflation. Japan’s central bank said it would charge 0.1 percent for excess reserves parked with the institution, an aggressive deflationfighting policy pioneered by the European Central Bank.

“It has become clear that stock markets cannot stand on their own feet. As long as the economy is shaky and the world is burdened with high debt, central banks and their money printing machines are a necessary evil to keep up the markets,” Koen De Leus, senior economist at KBC in Brussels, said.

Deflation discourages consumers from buying because they begin to expect prices to fall even further. Japan has been wrestling with the problem since the 1990s, and its central bank is concerned about the time it is taking to reverse expectations of price reductions.

“The signal that the Bank of Japan gives reminds us that central banks will continue to play their role of fighting deflation,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

“These actions typically drive up risky assets.” The pan-European FTSEurofirst 300 index rose 0.9 percent by 1139 GMT after having fallen 1.7 percent in the previous session.

Among top sectoral movers, the European banking index rose 1.2 percent after an encouraging earnings report from Span’s Banco Sabadell and with some Italian banks underpinned by speculation over possible M&A.

Banco Sabadell gained 6.1 percent after posting a 91 percent jump in full-year net profit, boosted by the acquisition of British peer TSB that more than offset rising provisions against bad loans in the fourth quarter.

Italy’s Popolare di Milano rose 3.9 percent and Banco Popolare was up 5.8 percent with traders citing speculation the two lenders could be closer to an agreement over a possible merger. — Reuters