Europe Central Banks Seen Keeping Rates at Lows: Global Economy

February 2, 2014

London (Feb 2)  On the heels of last week’s decision by the Federal Reserve to trim stimulus, central banks in Europe will probably maintain a steady course this week. The European Central Bank and the Bank of England will hold their key rates at record lows, according to economists surveyed by Bloomberg. The Reserve Bank of Australia will also keep its benchmark rate at a record low.

In the U.S., employment probably rebounded in January and the jobless rate held at a five-year low, while price increases in Brazil were the smallest in more than a year.


-- The Bank of England’s nine-member monetary policy committee will leave its key rate at a record-low 0.5 percent and its bond-purchase program target at 375 billion pounds ($617 billion), according to Bloomberg surveys before the decision on Feb. 6.

-- BOE officials are under pressure to reconsider their forward guidance policy, under which they pledged not to consider raising the benchmark rate until unemployment falls to 7 percent, after data showed the U.K. economy grew last year at the fastest annual pace since 2007. Governor Mark Carney, who is due to present new economic forecasts on Feb. 12, said the recovery “has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy.”

-- “We expect no change in policy at the February meeting,” Kevin Daly, chief U.K. economist at Goldman Sachs Group Inc., wrote in a note to clients on Jan. 29. Revisions to the guidance framework will probably be announced on Feb. 12 and “we expect the MPC to replace the existing framework with one based on a broader range of variables. Official rates are likely to remain on hold for some time.”


-- The European Central Bank on Feb. 6 will keep its benchmark interest rate unchanged at a record-low 0.25 percent, according to the median forecast in a Bloomberg survey.

-- Officials will have to decide whether recent volatility in financial markets warrants a policy response. While economists from Barclays Plc to Commerzbank AG have brought forward expectations for an interest-rate cut, Dutch central bank chief Klaas Knot said in an interview that he doesn’t see an imminent need to act.

-- “The most recent data give the ECB no reason to reassess the inflation outlook and money market tensions seem to be abating,” Dirk Schumacher, an economist at Goldman Sachs Group Inc. in Frankfurt, said in a note to clients Jan. 28. “We therefore do not expect any measures to be taken or announced at next Thursday’s meeting, although the overall tone of the press conference should be dovish.”


-- Weather may again play havoc with the Labor Department’s monthly jobs report. After the coldest December since 2009 chilled job growth to just 74,000 that month -- the weakest gain since the beginning of 2011 -- below-freezing temperatures and storms made forecasting January job growth more difficult. Payrolls climbed by 180,000 workers last month, according to the Bloomberg survey median before the Feb. 7 report. Estimates ranged from gains of 105,000 to 270,000.

While employment typically bounces back in the month following any weather-related slowdown, conditions around the country remained poor. The report may also show the unemployment rate held at a five-year low of 6.7 percent.

-- “Usually, any weakness caused by weather is fully reversed in the following month,” Peter D’Antonio, an economist at Citigroup in New York, said in a Jan. 30 note. “However, this time could be different,” he said. “Early January weather was exceptionally cold as well, which may have limited the bounce back.”

-- “If weather was a factor in December’s payrolls numbers, it’s going to be just as big a problem in January’s numbers,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC. “We see little reason aside from weather, however, that will shift the underlying trend of 180,000-200,000 monthly payrolls expansion. Still, even considering the holidays and the weather, a second month of below-trend payrolls numbers is going to raise the alarm in a way that a single, easily dismissed, data point did not.”

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