The Bank of Canada joined the list of “unpredictable” central banks on Wednesday with a shock quarter point rate cut as the European Central Bank (ECB) prepared a 600 billion euro (US$695 billion) bond-buying program aimed at lifting Europe out of its economic doldrums.
The Canadian move came in response to a sharp drop in oil prices that hit the commodity-dependent economy, expected to grow by just 1.5 percent in the first half of this year compared with the central bank’s previous forecast of 2.4 percent.
The surprise move follows Denmark’s rate cut this week and a shock decision by the Swiss National Bank on Thursday last week to drop its cap on the Swiss currency against the euro and cut its rates further, likely in anticipation of the ECB’s money-printing plan, which could weaken the euro.
A eurozone source said on Wednesday that the ECB’s Executive Board, which met on Tuesday, has proposed that the bank should buy 50 billion euros in bonds per month from March.
The broader, 25-member policymaking Governing Council was scheduled to discuss the proposal yesterday before ECB President Mario Draghi gave a news conference.
Rising deflationary risks also seem to be registering at the Bank of England where two policymakers on Wednesday ditched their long-standing calls for an end to record-low interest rates.
Brazil’s was the standout central bank, with its “Copom” monetary committee raising rates as expected for the second straight meeting by 50 basis points to 12.25 percent, its highest level since August 2011, in an attempt to contain inflation and restore investor confidence.
“Taking into account the macroeconomic situation and inflation perspectives, Copom unanimously decided to raise the Selic rate,” Banco Central do Brasil said in a statement after its monthly two-day meeting.
In Asia, Bank of Korea Governor Lee Ju-yeol yesterday appeared to rule out any further rate cut in the short term, and said the central bank’s decision to slash its economic growth forecast for this year was no cause for pessimism.
After two rate cuts last year, the Bank of Korea’s benchmark rate is at a record-equalling low of 2 percent — a level not seen since 2009-2010 when Asia’s fourth-largest economy was seeking to recover from the global financial crisis.
“We cut interest rates twice last year, so the level of monetary easing is greater than before,” Lee told journalists. “Now, we have to wait and see how the effects of the cuts we took last year will pan out.”
The global economy outside of the US has turned distinctly gloomy, with Japan and Europe struggling to gain traction.
A slump in oil prices to below US$50 a barrel has added to deflationary concerns and to worries that the global economy is struggling with a widespread deficit in growth.
China and the US are the only major economies growing at a meaningful rate yet Beijing has also signaled concerns over growth with more than US$8 billion of injections of short-term loans into the banking system on Wednesday.
The move followed data on Tuesday that showed the world’s second-largest economy grew 7.4 percent last year, the weakest rate since China was hit by sanctions in 1990 after the Tiananmen Square Massacre in 1989.
China cut rates on Nov. 24 for the first time in two years due to slower factory growth and a stalling property market, although People’s Bank of China Governor Zhou Xiaochuan (周小川) on Wednesday sought to downplay economic risks.
“Generally, if the average indicator of the Chinese economy is OK, the way for the central bank to have a specific policy targeted to the real estate market is difficult,” he told the World Economic Forum in Davos, Switzerland.
That leaves the US Federal Reserve on its own with its plans to lift rates above zero for the first time in six years despite the potential for a huge undershoot in the bank’s inflation target. The Fed is to meet on Tuesday and Wednesday next week, although it is not expected to act until June, at the earliest.
“There is no need to rush to raise rates; at the same time we want to make sure that we appropriately act in a way that we don’t get behind the curve,” San Francisco Federal Reserve Bank President John Williams told reporters on Friday last week.
The US economy added 1.7 million jobs last year alone and likely expanded by 2.6 percent in the year.
Additional reporting by AFP
Polytronics Technology Corp (聚鼎科技) yesterday announced that it is buying Henkel AG’s thermal clad dielectric material (TCLAD) business division for US$26 million as the Taiwanese firm aims to improve its technology, product portfolio and revenue performance. Polytronics, headquartered in the Hsinchu Science Park (新竹科學園區), is a supplier of protection components and heat dissipation materials. The firm entered the metallic heat-dissipation substrate market in 2007 and developed a unique solventless production process. Its board of directors approved signing an agreement with Henkel to acquire the German chemical firm’s TCLAD division in the US. The purchase includes all assets and business interests, including equipment,
SIZE MATTERS: Medium-sized hotels that do not have the support of parent groups are more vulnerable and are forced to take action, a REPro Knight Frank researcher said About 50 hotels across Taiwan are seeking to exit the market as they succumb to the bleak business outlook amid international travel restrictions imposed to combat the COVID-19 pandemic. Yomi Hotel (優美飯店) on Minsheng E Road, Sec 1, in Taipei is seeking to transfer ownership with an asking price of NT$950 million (US$32.15 million) and a pledge for a lease contract that guarantees a 3 percent return. The budget hotel, with room rates that start from NT$1,400 per night, maintains normal operations, but has been struggling since March, when the government placed restrictions on inbound and outbound travel. Occupancy rates for hotels in
With the US dollar expected to weaken in the next 12 months due to near-zero interest rates, investors should consider purchasing US corporate bonds, Standard Chartered Bank Taiwan Ltd (渣打台灣銀行) said on Thursday. The bank said that the US Federal Reserve since last month has been buying bonds issued by US companies to curb default rates. The US dollar is forecast to be weaker against the pound, the euro and the yen, as well as the Canadian dollar, the Swedish krona and the Swiss franc, as the greenback lacks high investment returns after the Fed in March slashed the benchmark interest rate
A Bollywood actor’s face tattooed on his arm, Sandeep Bacche’s devotion shocks few in India where stars enjoy semi-divine status, but even there the hallowed silver screen might be losing its shine to streaming services and pandemic fears. “Whenever things get better and theaters begin operations, I will watch three movies a day for sure just as a way to celebrate,” said the Mumbai rickshaw driver, who is recovering from the virus himself. However, others might not join the party. With cinemas shut for months due to a COVID-19 lockdown, and little prospect they will reopen soon, frustrated Bollywood producers have turned to