Date: 09-12-2021
By Eva Kuehnen
FRANKFURT | Thu Dec 6, 2012 9:34pm IST
(Reuters) - The
European Central Bank pondered an interest rate cut on Thursday and predicted
the euro zone economy would shrink again in 2013, leaving the door open to a
possible reduction in borrowing costs early next year.
ECB President Mario
Draghi said the policymaking Governing Council held a wide discussion on
interest rates before opting to leave them on hold. The euro fell against the
dollar and the yen in response.
The Council also
touched on the idea of cutting its deposit rate into negative territory. By
effectively charging banks for their deposits rather than paying them interest,
the ECB could push banks to put their money to work elsewhere.
"There was a wide
discussion ... but the consensus was to leave the rates unchanged," Draghi
told a news conference, a hint that opinions differed about what course to
take. When there is unanimity, the ECB chief generally says so.
In the end, the ECB
left its main interest rate at a record low 0.75 percent for the fifth month
running despite new forecasts which suggest the euro area economy will contract
next year as it has this. It left the deposit rate at zero.
On the idea of negative
deposit rates, Draghi said: "We briefly touched upon the complexities that
such a measure would involve and possible unintended consequences, but we
didn't elaborate any further."
The bank's new staff
projections put gross domestic product in a range of falling by 0.9 percent to
growing by just 0.3 percent next year, suggesting contraction is far more
likely than not. Draghi said downside risks prevailed.
In September, the ECB's
staff had pencilled in a significantly higher range of -0.4 to +1.4 percent for
the euro area economy.
"The somewhat
downbeat ECB forecasts, the sombre tone of the ECB statement and Draghi's
admission that the ECB had a 'wide discussion' over many issues including a
potential rate cut also keep the door open for a cut in early 2013," said
Berenberg Bank economist Holger Schmieding.
The Governing Council's
decision to leave its main interest rate unchanged for now matched economists'
expectations in a Reuters poll, which also showed opinion was split down the
middle over the chances of a cut early next year.
"Later in 2013,
economic activity should gradually recover as global demand strengthens and our
accommodative monetary policy stance and significantly improved financial
market confidence work their way through the economy," Draghi said.
But a political impasse
over the United States' fiscal policy, which could presage steep tax hikes and
budget cuts if a deal is not reached, could also dampen sentiment for longer,
he said.
The level of
uncertainty was reflected in the ECB's first attempt to forecast 2014, for
which it pencilled in growth of between 0.2 and 2.2 percent. The midpoint
forecast for 2012 was pushed slightly lower to -0.5 percent.
The ECB will also
continue to supply euro zone banks with all the liquidity they ask for in the
central bank's refinancing operations at least until July 2013, Draghi said.
WAITING
FOR SPAIN
While financial markets
have calmed since the European Union and the International Monetary Fund put in
place further steps to help Greece, and the ECB promised to do what it takes to
preserve the euro, the bloc's economy has sunk into recession from which it
shows few signs of emerging soon.
An inflation forecast
of 1.1 to 2.1 percent next year -- compared with the ECB's target of close to
but below two percent -- means there appears to be plenty of room to cut rates
further.
But some at the central
bank are wary of taking any action that could see the bloc's governments
soft-pedal on budget consolidation efforts. Others, it seems, feel the economy
warrants more stimulus now.
Market interest rates
vary greatly across the 17-country bloc and the ECB is focused primarily on
fixing what it calls the 'transmission mechanism' for passing on its rates to
all corners of the euro area before.
The most obvious way of
doing that would be using the ECB's yet to be used new bond-buying scheme,
which could drive down government borrowing costs.
The ECB has not yet
bought any sovereign debt under its new programme -- dubbed Outright Monetary
Transactions (OMT) -- because Spain, which is seen as most likely to become the
first country to make use of the new support measure, has not yet fulfilled the
precondition of asking for help from the euro zone's rescue fund.
Spanish Prime Minister
Mariano Rajoy has said he wants assurances that ECB intervention would bring
down Spain's debt yields, Draghi refused to commit to any targets for bringing
down Spanish borrowing costs.
"The conditions
under which the OMT is going to be activated are very straight," he said.
"They don't talk about negotiations or a certain interest rate or anything
like
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Date: 08-12-2012
China to stick with 7.5 pct economic
growth target in 2013 – sources
By Kevin Yao
BEIJING | Fri Dec 7, 2012 2:29pm IST
(Reuters) - China's leaders are likely to stick with
the 2012 economic growth target of 7.5 percent when they chart a course for 2013,
allowing higher levels of fixed-asset investment to offset weak export demand,
sources involved in internal discussions about the plans say.
The leaders are expected to gather in mid-December
for the annual Central Economic Work Conference, which investors watch closely
for clues on policy priorities for the year ahead.
Steering a steady course for the economy may
disappoint some in financial markets because of expectations China's new leader
Xi Jinping and other policymakers would unveil aggressive stimulus next year
when they take office to revive an economy seen growing in 2012 at its weakest
pace since 1999.
China's annual growth rate fell for seven straight
quarters through the third quarter, but economists are forecasting the start of
a pick up in October-December and for full-year expansion to top the government
target. However, with the euro area in recession and U.S. demand sluggish, the
economy faces considerable headwinds in 2013.
"The 7.5 percent economic growth target is
achievable, but it cannot be achieved without any difficulties," said a
source at a top think-tank.
Beijing had maintained a target for economic growth
of 8 percent for eight years before cutting it in 2012 to 7.5 percent.
Policymakers believe keeping the 7.5 percent target in
2013 will help balance the need to keep growth humming with the need for
economic wiggle room to deepen reforms, said government economists involved in
the discussions about the plans.
The government also intends to maintain a 4 percent
inflation target and 14 percent limit on M2 money supply, the sources said.
They declined to be identified because of the sensitivity of the issue.
The target for fixed-asset investment, or spending
in such areas as infrastructure, roads, bridges, and housing, could be raised
to around 20 percent from 16 percent in 2012, they said.
A higher target is unlikely to surprise financial
markets however, since investment in January-October 2012 was running well
ahead of target at more than 20 percent from a year earlier and policymakers
earlier this year said they would fast-track investment approvals to underpin
growth.
"I am not overly concerned about over
investment as long as it is channelled to sectors in need while steering away
from resource intensive and inefficient industries," said Connie Tse, an
economist at Forecast Pte in Singapore.
A higher pace of investment could also help offset
weakness in export demand, which the Organisation for Economic Co-operation and
Development highlighted as a major weak spot for the next few years.
The sources said top leaders would also maintain a
"prudent" monetary policy in 2013, the catch word since late 2010
that has encapsulated at first modest tightening and then modest loosening
following the global financial crisis.
Equally, the new regime will keep to a pro-active
fiscal policy, giving room to increase state outlays on infrastructure
investment if needed.
Setting a 4 percent inflation ceiling reflects the
official view that price pressures could rise from the current rate of 1.7 percent
due to the impact of loose monetary policy in the West, especially in the wake
of U.S. measures of pump cash into its economy, the sources said.
The exact date of the economic conference is not
known. Chinese state-news agency Xinhua usually reveals the date just before
the meeting opens and announces details once it is over. It was held between
Dec 12-14 last year and Dec 10-12 in 2010.
The government, however, may not announce the
targets before the annual parliament meeting in early March 2013.
GLOBAL RISKS
China's annual economic growth dipped to 7.4 percent
in the third quarter, its weakest pace since the first quarter of 2009 when
China was reeling from the global financial crisis.
Growth is expected to pick up in the fourth quarter
following a raft of measures, including two interest rate cuts this year,
reductions in bank reserve requirements and faster approvals for infrastructure
projects.
"China's economic outlook will be slightly
brighter in 2013 - slow recovery but no sharp turn-around," Zhu Baoliang,
chief economist at State Information Centre, a top government think-tank in
Beijing, said.
Zhu expects growth to quicken slightly in 2013 to
around 8 percent from 7.7 percent this year.
But analysts say Beijing will shun big stimulus next
year, even though leadership transitions in the past had been marked by big
jumps in public investments.
Expectations China might try to give a major boost
to the economy when the country's new leaders take office in March have lifted
markets on occasions. On Wednesday, mining stocks rose after Xi talked about
targeted and effective economic policies.
Beijing is wary of over stimulating the economy
though, as it is still dealing with the hangover of its 4 trillion yuan
spending binge to boost growth in the global financial crisis that saddled
local governments with piles of debt.
In addition, Chinese leaders recognise that three
decades of double-digit expansion is over and lower growth rates are needed to
allow the economy to adjust more towards domestic driven growth, analysts say.
Both Xi and premier-in-waiting Li Keqiang have
signalled an intention to deepen economic changes to underpin longer-term
growth, which analysts expect to include such measures as further
liberalisation of interest rates and the currency and efforts to narrow the
rich-poor divide.
Ma Jiantang, head of the National Bureau of
Statistics, said that modest economic growth will help economic restructuring
as Chinese firms are under pressures to move up the value chain.
"
The current 7-8 percent speed is favorable for
structural adjustments. If we really want to adjust economic structures, we
cannot have high expectations on growth and should accept the 7-8 percent
rate," Ma wrote in a recent article. (Reporting by Kevin Yao; Editing by
Neil Fullick)
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Dow Jones & Co
The chief executive officer of Dow Jones & Co., a man who once headed the Rupert Murdoch company at the center of the phone-hacking scandal, resigned Friday as Murdoch himself apologized for "serious wrongdoing" in an ad running in the British press this weekend.
Lucas Jackson / Reuters Les Hinton
