Sun, Nov 10, 2013 - Page 13 News List

Central banks renew reflation push as prices weaken

Bloomberg

Central banks around the world renewed efforts this week to reflate their economies as slowing prices emerge as a threat to global prosperity.

A day after the European Central Bank (ECB) unexpectedly halved its benchmark interest rate to a record-low 0.25 percent and Peru cut its main rate for the first time in four years, the Czech central bank yesterday intervened in currency markets.

The Reserve Bank of Australia (RBA) yesterday left open the chance of cheaper borrowing costs by forecasting below-trend economic growth.

“Central banks want to err on the side of keeping policy easier for longer as they don’t see an inflation danger out there,” said Kit Juckes, global strategist at Societe Generale SA in London. “There is a fear of deflation for some and nobody wants to increase the risk of it.”

The need to sustain or reinforce stimulus was demonstrated this week by new estimates from the Organization for Economic Cooperation and Development that showed average inflation across its 34 members slowed in September to an annual rate of 1.5 percent. That is close to the 1.3 percent recorded in May, which was the softest since the world was plagued by recession in 2009.

“It does look as though inflation is certainly not a concern on the upside anymore,” Stamford, Connecticut-based Pierpont Securities Holdings LLC global strategist Robert Sinche said in a radio interview on Bloomberg Surveillance on Tuesday. “Monetary policy around the world is probably going to stay accommodative for a good deal longer.”

Two months after the US Federal Reserve delayed pulling back its US$85 billion of monthly asset purchases, the ECB on Thursday joined the reflation push with a rate cut aimed at tackling what ECB president Mario Draghi called a “prolonged period of low inflation.”

The reduction was anticipated by just three of 70 economists surveyed by Bloomberg News and came after the eurozone’s inflation rate slid to 0.7 percent last month, the weakest in four years and less than half of the ECB’s target of just below 2 percent.

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