Highlights of the week ended February 6

Source: Dukascopy Bank SA
The Reserve Bank of Australia has joined easing trend spreading around the world's leading central banks. The RBA announced a 25 basis point interest rate cut, bringing the official cash rate down from 2.50% to 2.25%, referring to soft inflation and weak economic growth as the key drivers behind the decision. That was the first time in 17 months that the RBA has altered the rates. The RBA revised its growth and inflation outlook for 2015, expecting the Australian economy to grow at 2.75% in the year ending June 2015, down from the previous estimate of 3%. Additionally, the central bank downgraded its inflation forecasts amid the effects of a sharp plunge in oil prices and the weaker outlook for labour and product markets. The annual change in consumer prices was cut from 1.5-2.5% in the year ending June 2015 to 1.25%, and from 2.5-3.5% in the year ended December 2015 to 2-3%. By cutting rates the central bank hopes to boost business activity and household spending in light of slowing growth, low commodity prices and weak investment.
Meanwhile, its neighbor, the Reserve Bank of New Zealand, reiterated that the official cash rate will be held unchanged for some time in light of the recent easing actions by other major central banks amid world's disinflation pressures. Future economic data will determine interest-rate adjustments, RBNZ Governor Graeme Wheeler said, underlying that policy easing may be justified should domestic demand weakened and price pressures cooled further. Majority of economists do not expect the RBNZ to alter borrowing costs until 2016 following Wheeler's move to neutral policy stance.
In Europe, while Greece is trying to fix its finances, the European Central Bank poured cold water on Greece's attempts to find support overseas. The central bank said that it would no longer accept Greece's bonds as collateral  or monetary operations starting next week. This means that Greek banks will not be able to use their bonds for cash funding from other banks. Instead the Greek central bank will have to provide banks with billions of euros of emergency funding. Thus, the Greek government is now under even greater pressure to prepare a realistic and viable economic recovery plan in order to get the debt restructuring, as the country is expected to run out of cash in three-week time.
Meanwhile, the European Commission's winter economic forecast suggests that all EU member states will grow again this year, with the economic output picking up moderately in both the EU and Euro zone, before accelerating further in 2016. The Euro zone's economy is seen growing 1.3% throughout this year, by expanding at a 1.9% rate in 2016. Concerning inflation, the ECB predicts that the Euro area's HICP inflation is likely to stay very low or negative in the coming months. However, consumer prices are expected to rise gradually later in 2015 and in 2016, supported by the central bank's monetary policy measures. Peter Praet, the ECB Executive Board member, said that the current EUR/USD exchange rate better reflects the divergence between the US and Euro zone economies. Meanwhile, Jens Weidmann, ECB Governing Council member, reiterated his critics concerning central bank's QE programme. Weidmann said that the scheme entails risks that outweighs benefits. Moreover, he added that he did not see deflation threat in Europe, which is "characterized by a downward spiral of falling prices, declining wages, consumer restraint and reduced investment by companies."

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Mon, 09 Feb 2015 06:41:03 GMT

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