ECB's TLTRO disappoints, China to face hard landing, RBA to cut rates

Note: This section contains information in English only.
Source: Dukascopy Bank SA
In the European Central Bank's second round of targeted long-term loans Euro zone financial institutions borrowed less than expected, complicating the central bank's balance sheet expansion goal. Altogether, 306 banks took up 129.84 billion euros in the auction, more than they did in September but considerably below analysts' expectations. Coupled with purchases of asset-backed securities and covered bonds, the ECB plans to expand its balance sheet by almost €1 trillion to €3 trillion by late 2016. However, following the weak uptake in the TLTRO, pressure has been increasing on the ECB to eventually deploy full-blown quantitative easing if it is to achieve its goal to expand the balance sheet to near March 2013 levels.
The possibility of quantitative easing by the European Central Bank has pushed the Franc toward the SNB's ceiling. The SNB policy makers did not exclude the prospect of further steps, to defend the cap the bank introduced three years ago. The central bank kept its ceiling of 1.20 per Euro and the target range for its benchmark interest rate at zero to 0.25%. Policy makers cut their forecasts for inflation for the next two years, due to combination of a strong nation's currency and falling oil prices, while upgrading this year's outlook for economic growth. Switzerland is not the only one, which is willing to do whatever it takes to defend the currency peg. Denmark also stands ready to defend its 30-year old currency regime. Should ECB stimulus measures debase the Euro, Deputy Governor Per Callesen says there is no limit on how far Denmark, where the benchmark interest rate is already below zero, is ready to go to defend the Krone's peg to Europe's single currency.
Meanwhile, data from China, the world's second biggest economy, continues to point that a hard landing is now a distinct possibility following years of over-expansion. China's consumer price inflation cooled further in November, falling to the lowest level in five years of 1.4% down from 1.6% a month earlier, underlying persistent weakness in the Chinese economy and providing policy makers with more room to easy monetary policy further to bolster growth.
In Australia, the country that also suffers from slowing growth in its top trading partner—China, unemployment rate inched higher to 6.3% in November, despite the creation of more than 42,000 jobs during the reported month, underlying how a sluggish growth is reflected in the labour market, which is expected to stay fragile well into next year, adding to belief that the RBA will have to renew stimulus measures. It was the fastest pace of jobs creation since March 2012, but also the highest unemployment rate for more than 12 years. The Reserve Bank of Australia has come under more pressure to cut interest rates to provide support to the moribund economy, which avoided recession for more than 20 years, but is struggling to make transition to non-mining driven growth.
The Reserve Bank of New Zealand kept interest rates unchanged at 3.5%, with a modest inflation pressures allowing the central bank some time for assessment and more gradual rate hikes. The central bank reiterated its stance that the New Zealand Dollar is unjustifiably and unsustainably strong, which is keeping inflation contained.

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Mon, 15 Dec 2014 07:18:05 GMT

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