ECB Holds Rate, BoE Lowers

123jump.com Staff
10 Apr, 2008
New York City

The ECB left its key rate unchanged at 4% but the Bank of England lowered its rate by 0.25% to 5%. The ECB decision was influenced by rising inflation pressures and lowest unemployment rate in the region. While, the Bank of England worried that risk of softness in the housing market was critical than rising inflation.

[R]2:00PM New York - UK cut interests rate and the European Central Bank keeps the rates unchanged.[/R]

ECB rate decision

The European Central Bank left its key rate unchanged at 4% after citing low unemployment and rising pressure on inflation. The bank also cited the broadest measure of money supply growth and said that M3 supply in February rose at 11.3%. The central bank also suggested that the current credit market turmoil has at least so far, not affected loan volumes.

“Looking ahead, both domestic and foreign demands are expected to support ongoing real GDP growth in the euro area in 2008, albeit to a lesser extent than during 2007. While moderating, growth in the world economy is expected to remain resilient, benefiting in particular from strong growth in emerging economies. This should continue to support euro area external demand.

Meanwhile, investment growth in the euro area should provide ongoing support to economic activity, as capacity utilization is high, profitability has been sustained and there are no significant signs of supply constraints on bank loans. At the same time, as a result of the improved economic conditions and wage moderation, employment and labor force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years.

While being dampened by the impact of higher energy and food prices on purchasing power, consumption growth should continue to contribute to economic expansion, in line with real disposable income growth.”, as noted in the press statement issued by the ECB.


BoE lowers rate to support housing market

The Bank of England has, for the third time in three months reduced the benchmark interests rate by 0.25% point to 5% while the European Central Bank left the rates unchanged at 4%.

The BoE Monetary Policy Committee, led by the governor Mervin King on Wednesday voted to reduce the official bank rate as it balanced forces to tame inflation and keep housing market from falling further.

In a statement published on the BoE official website, the committee approved a reduction in bank rate of 0.25% was necessary to meet the 2% target for CPI inflation in the medium term and hoped that lower rates will keep housing prices from declining further.

According to the official data, inflation index CPI rose to 2.5% in February on higher energy and food prices, above the target increase of 2%. According to Halifax, part of UK HBOS bank, said house prices fell 2.5% in March compared with February, when they fell 0.3%, the biggest monthly fall since September 1992.

Gainers & Losers

European market edged lower on Thursday as the key regional indices declined.

In Frankfurt, Daimler led the decliners. The company lost 3.58% followed by RWE AG which fell 2.7% and Metro settled lower at 2.7%.

In France, the CAC 40 Index fell 0.44% or 4,853.64 led by losses in Gaz De France. The stock lost 1.2% or 41.16 followed by EDF at 1.5% or 59.54 and Suez at 1.09% at 44.48.

World Markets

In Tokyo Nikkei 225 Index closed lower 166.59 or 1.27% to 12,945.30, in Hong Kong Hang Seng index increased 202.53 or 0.84% closed to 24,187.10. In Australia ASX 200 index lower 73.80 or 1.34% to close 5,446.40. In Malaysia KL Composite index increased 20.45 or 1.67% closed to 1,248.19.

In South Korea Kospi Index increased 9.93 or 0.57% to close at 1,764.64, in Thailand SET index closed lower 5.21 or 0.63% to 820.98 and Indonesia JSE Index edged increased 55.85 or 2.56% to 2,235.93. Sensex index in India decreased 95.41 or 0.60% to 15,695.10.

In London FTSE 100 Index closed lower 18.80 or 0.31% to 5,965.10, in Paris CAC 40 Index decreased 15.55 or 0.32% to close at 4,859.42 and in Frankfurt DAX index lower 17.04 or 0.25% to close at 6,704.32. In Zurich trading SMI decreased 90.43 or 1.22% to close at 7,312.65.