Sao Palo, Brazil (AHN) – Brazil’s central bank cited a “substantial deterioration” in its outlook for the economy and unexpectedly announced a cut in its key interest to 12 percent from 12.5 percent.

Rising prices have been a problem in Brazil, and the central bank had raised its key interest rate five times this year in an effort to contain inflation.

However, inflation is still running at a six-year high of 7.1 percent.

The continued high inflation rate couple with the unexpected cut coming a few days after several politicians had called for a rate cut. Observers say it calls into question the central bank’s independence.

Brazil, which is the biggest economy in South America, grew at the rate of 7 percent last year. This year Brazil’s economy is expected to grow at the rate of 5 percent.

View full post on Interest Rate Stories

Washington, D.C., United States (AHN) – The U.S. Federal Reserve promised on Tuesday that it would hold interest rates at record lows for at least two years. The Fed had held on to the record-low key lending rate since December 2008 to help boost the American economy.

The decision was based on a 7-3 vote, which was the first time in 20 years that three Fed members dissented. The three members who dissented were Federal Reserve Bank of Dallas President Richard Fisher, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota and Federal Reserve Bank of Philadelphia President Charles Plosser.

Besides holding the interest rate until the middle of 2013, the Fed said it would consider additional measures to support the weak American economy, worsened by Standard & Poor’s downgrade of the country’s credit rating last week to AA+ due to the impasse on the debt limit issue.

The stock market, which dipped following the S&P downgrade, made a dramatic rebound on Tuesday after the Fed announcement. The Dow Jones industrial average ended up by 429 points, which was almost a 4 percent rise – the largest increase in two years.

The Fed policy gave American companies and consumers with more certainty about the availability of low-cost borrowing for major purchases such as vehicles or homes. At the same time, it is expected to encourage investments and risk-taking to convince the markets that the cost of borrowing will not go up for at least two years.

However, the policy is an indicator that the U.S. economy will continue to crawl until the end of President Barack Obama’s first term in office, while wages will remain stagnant and high unemployment rate will continue.

With the policy on benchmark lending rates out, investors are waiting if the Fed would also announce a new round of quantitative easing. The Fed has carried out two rounds of federal stimulus programs, but apparently is hesitant to further pump prime the economy over fears that it would have little impact and could even be inflationary.

View full post on Interest Rate Stories

Washington, D.C., United States (AHN) – The U.S. Federal Reserve would likely keep the record-low interest rates, Treasury markets indicate.

According to a Federal Bank of Cleveland study, the U.S. economy is forecast to grow by only 1.1 percent in the 12 months ending June 2012. That rate is less than half of the central bank’s current forecast and would likely result in delaying any key lending rate increase.

The Fed has held benchmark interest rates from zero to 25 basis points since December 2008.

Given the slower growth of the American economy, analysts said that the Fed is not likely to hike interest rate until June next year. That would make it the longest period that the central bank has held on to a low key lending rate since the 1940s when the Fed was forced to buy Treasuries.

From 1937 through 1947, the Fed kept its rediscount rate at 1 percent. It was the last time the American central bank maintained a prolonged monetary support for the ailing U.S. economy.

Another restraint to the expansion of the U.S. economy would be spending cuts to be agreed by U.S. President Barack Obama and Congress before the Aug. 2 deadline to hike Washington’s debt limit of $14.3 trillion.

However, analyst said the biggest hindrance to raising the overnight lending rate from almost zero would be the U.S. economy’s failure to create more jobs. The recession and the global financial crisis led to the loss of 8.7 million jobs in the U.S. in 2008 and 2009. In 2010, only 1.7 million jobs were created, resulting to national unemployment rate rising to 9.2 percent in June from 8.8 percent in March.

Fed Chairman Ben Bernanke placed a condition of sustained period of strong job creation as a basis for declaring an economy recovery. That translates into a gross domestic product growth rate between 2.7 to 2.8 percent.

View full post on Interest Rate Stories

Frankfurt, Germany (AHN) – The European Central Bank raised on Thursday key lending rates by a quarter point to 1.5 percent. The rate hike aims to curb inflation, said ECB President Jean-Claude Trichet.

He hinted of more benchmark rate increases in the future, despite weak economic growth in southern Europe and problems in the bond markets. Trichet made the rate hike announcement even if the ECB had been warned that the increase may be bad for the Spanish and Italian economies.

Trichet stressed that all eurozone nations are on the losing end if the regional central bank would fail to rein in price increases through the key lending rate increase. Inflation in the zone hit 2.6 percent in June due to pressure on fuel and food prices.

Following the rate hike announcement, yields on 10-year Italian bonds went up to a high of 5.21 percent, while the Spanish bonds yielded 5.71 percent, but settled down slightly on Thursday/

The ECB, however, waived collateral requirements on Portuguese bonds, which would allow the country’s banks to continue tapping the ECB’s liquidity window after Moody’s downgraded Portugal’s debt to junk. The bank had already waived the rules earlier for Greece.

Trichet cautioned eurozone governments against initiating measures that the credit ratings agency may consider a default, which would trigger billions of euro-worth of complex financial instruments such as credit default swaps, and destabilize the European banking sector.

Analysts said that the announcement would increase borrowing costs and make like harder for nationals of several eurozone economies such as Greece, Portugal, Ireland, Italy and Spain – which are all pushing for belt-tightening measures to reduce national budget deficits amid weak economic growth or recession.

View full post on Interest Rate Stories

London, England, United Kingdom (AHN) – The international banking regulator, the Bank for International Settlements (BIS), urged over the weekend the Bank of England to raise the country’s record-low interest rates.

The regulator warned that financial stability of Britain is at risk unless the country’s central bank imposes tighter monetary policy.

Although the BIS, in its yearly report released on Sunday, made the same warning to central banks around the world, it singled out the Bank of England because Britain’s inflation rate had exceeded the BOE’s 2 percent target since December 2009.

The BIS pointed out that the United Kingdom’s consumer price index has reached 4.5 percent, while the country’s key lending rate continues to be at 0.5 percent since March 2009.

The BIS stressed that the BOE’s extremely accommodative policies threaten to embed high inflation in the system and damage prospects for long-term growth. It also places at risk financial stability because the very low rates encourage risk-taking in the financial sector.

The BIS said central banks must be prepared to hike key lending rates at a faster pace than previous monetary tightening episodes.

The BOE favors low rates because the recent rise in commodity prices was a one-time incident and there is enough slack in the economy to keep wage pressures down. But the BIS disagrees with the bank’s assumptions.

The BIS said there is still a threat of second-round effects because higher food prices could cause higher salaries in emerging markets, which in turn, could cause an increase if the global supply chain.

Despite inflation rate in England hitting 4.5 percent in April, and economists expectation of a key lending rate increase within the year, the Bank of England’s monetary policy committee has not yet indicated an interest rate hike is underway soon.

View full post on Interest Rate Stories

Moscow, Russian Federation (AHN) – Strong inflationary pressure that threatened to derail Russia’s feeble economic recovery prompted the central bank to raise its key interest rate by 0.25 basis points to 8.25 percent.

The Russian Central Bank announced the increase in its refinancing rate on Friday and said it would take effect on Tuesday.

It marked the second time since February that the bank has raised its rate, before that the bank had not raised its main interest rate in two years.

Bank officials said their focus was to combat inflation. The inflation rate reached 9.6 percent on April 25.

In addition, the value of the ruble has risen against the dollar. The ruble is at its highest rate in currency trading against the dollar since December.

View full post on Economy, Business And Finance Stories

A proposed rule that would require federal credit unions to create written interest rate risk policies and develop an individual interest risk management insurance program was the central topic of Thursday’s NCUA board meeting.

View full post on Credit Union Stories

Washington, DC, United States (AHN) – A study released 12 months after Congress passed the Credit Card Accountability, Responsibility and Disclosure Act found that the law had stopped credit card companies from increasing interest rates on cardholders’ existing balances, cut penalties and practically removed overlimit charges.

However, credit card companies continued to use new tactics designed to go around the CARD Act, which prompted recommendations for a new approach to regulate the industry.

According to the Consumer Financial Protection Bureau survey of nine of the largest card issuers in the U.S. representing 90 percent of the market, because of the Act the number of accounts that had interest rate hikes on existing balances dropped to 2 percent from 15 percent. One bank regularly reviews accounts to check on new purchases on which higher interest rates can be imposed, while five banks instead hiked rates on delinquent accounts.

Because of the Act’s cap on $25 on the first violation and $35 on the second violation on late fees, total late fees paid by delinquent cardholders dropped to $427 million in November from $901 million in January 2010.

Despite the drop, Consumers Union asked the CFPB, which will administer the CARD Act, to further lower penalties for late fees to $10 for first violation and $15 for the second offense.

Bank of America said Monday that the Act had such an adverse impact on the credit card industry that the bank had to double its write-down funds on its FIA Card Services unit to $20.3 billion to reflect industry regulation and the deterioration of credit quality. The write-down covered 2009 and 2010, but Bank of America said it does not affect the institution’s consolidated financial results or capital reserves.

The CFPB study also found that fewer than 50 percent of consumers are very or somewhat familiar with the CARD Act, while 30 percent admitted they were not familiar with the one-year-old law at all.

View full post on Economy, Business And Finance Stories

London, England, United Kingdom (AHN) – Pressure is being exerted on the Bank of England to hike key lending rates as its Monetary Policy Committee meets Thursday to discuss a possible interest rate increase to curb inflation.

Two former MPC members cited the anticipated 4 percent inflation rate – twice the bank’s target of 2 percent – as their reason to favor a benchmark lending rate hike. DeAnne Julius and Tim Besley said Wednesday that if they were still members of the MPC, they would vote for an increase on the current record-low 0.5 percent interest rate.

Two current MPC members, Andrew Sentence and Martin Weale, indicated they would also favor a key lending rate hike.

Joining the growing clamor to adjust the interest rate to curb inflation is the Chamber of British Industries, which forecasts that the key lending rate would climb to 1.25 percent by the end of 2011.

The very low interest rates in some developed nations are being blamed for the rise in cheap money, which artificially upped assets prices and demand for goods and food. In turn, higher demand for these items caused prices to go up and stoked U.K.’s inflation rate to reach 3.7 percent.

However, on the other end, some business groups such as the British Chamber of Commerce favor keeping the status quo. The BCC said the move would protect small- and medium-sized businesses from paying higher loan rates.

Six other MPC members are in favor of retaining the current rate, while MPC member Adam Posen is pushing for another round of a $75 billion (GBP 50 billion) quantitative easing.

View full post on All Stories

Delhi, India (AHN) – Inflation is putting pressure on India’s economy and threatening the country’s rapid economic growth.

India’s Prime Minister Manmohan Singh warned Friday that India had unsustainable rates of inflation with its general inflation rate running 8.4 percent, while its food inflation rate is at 17 percent.

Singh’s comments caused speculation that India was probably going to increase interest rates again in an attempt to curb inflation. If so, it would mark the eighth time interest rates were increased in 12 months.

India has experienced growth in its gross domestic product of 8.5 percent. India’s growing economy, along with those of other developing nations, has been fueling the global economic recovery.

Increases in food prices and oil prices, along with rising wages, increase the likelihood that India’s central bank will increase interest rates before it meets again on March 17.

However, some analysts expect growth to strengthen to 8.6 percent. In addition, India’s rupee strengthened by 0.4 percent this week to 45.60 per dollar in currency trading

View full post on All Stories