Bloomberg.com: Worldwide

Bank of Japan May Be Heading Back to `Zero Interest-Rate World'

By Jason Clenfield

Nov. 1 (Bloomberg) -- The Bank of Japan's interest rates may be headed back to zero.

Governor Masaaki Shirakawa and his board yesterday cut the key overnight lending rate by 20 basis points to 0.3 percent, abandoning a two-year struggle to raise the lowest borrowing costs among major economies. Three of the eight members argued for a deeper cut of 25 basis points and one wanted no change.

``We are headed back to a zero interest-rate world,'' said Tomoko Fujii, head of economics and strategy at Bank of America Corp. in Tokyo.

Should interest rates return to zero, the Bank of Japan may not be alone. Federal Reserve Bank of San Francisco President Janet Yellen said this week that the U.S. central bank may cut the benchmark rate close to zero from the current 1 percent level if the economy remains weak.

Shirakawa, 59, cast the deciding vote yesterday after the board was evenly split for the first time since the central bank gained its independence from the government 10 years ago.

The Bank of Japan will do its utmost to get the economy growing again ``through maintaining accommodative financial conditions,'' it said in a statement accompanying the reduction.

Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group in Tokyo, said this language suggests the bank will keep rates low until the global economy picks up. He's not related to the central bank governor.

``It'll be very difficult for the Bank of Japan to avoid reintroducing the zero-rate policy,'' said Credit Suisse's Shirakawa, who used to work at the central bank. ``The question is only when.''

Back to Deflation

The bank's twice-yearly outlook issued yesterday may partly explain the reason for the reduction in lending rates.

Inflation may fall back to zero percent next fiscal year, the bank predicted. It also slashed its growth forecast for the year ending March to 0.1 percent from 1.2 percent in July.

``The BOJ thinks we're going to go back into deflation,'' said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. ``You shouldn't have been raising rates until you were confident that you weren't going to go back into deflation.''

A zero-rate policy prevailed in Japan for five years until July 2006 as the bank tried to end the deflation that followed the bursting of the bubble economy in the early 1990s.

From March 2001 until March 2006, the bank combined zero rates with a so-called quantitative-easing policy of increasing money in the accounts held by commercial banks. That measure isn't likely to be repeated.

Quantitative Easing

Shirakawa said in a May interview that he'd be reluctant to return to the policy which ``had limited impact'' in resolving the problem of stagnant economic growth. ``There have been a variety of evaluations, but I personally consider it so.''

If the economy deteriorates and the central bank needs to provide extra funds, it may consider alternative means to those used under quantitative easing, said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.

The bank may need to expand the range of collateral it accepts from lenders in exchange for loans, step up government bond purchases from banks from the current 1.2 trillion yen ($12 billion) a month, and purchase commercial paper and corporate debt to improve companies' access to cash, Sato said.

Shirakawa said yesterday that the central bank is considering measures to help commercial banks reduce share holdings, including resuming buying stocks.

The Bank of Japan bought about 2 trillion yen in shares held by banks between 2002 and 2004 to protect lenders' capital from being depleted by slumping stock prices. The central bank started selling its stake two years ago, though it halted the sales this month as the stock market tumbled.

May Be Reluctant

The bank may be reluctant to go back to zero rates, warning in its policy outlook yesterday that ``from a longer-term perspective,'' keeping borrowing costs low for too long ``may lead to larger swings in economic and financial activity as well as in prices.''

Still, the global financial crisis will ``weigh on economic activity for some time to come,'' the bank said.

``This is an understatement -- the world economy is heading for the biggest recession since World War II,'' said Julian Jessop, chief international economist at Capital Economics in London. ``We expect the bank to cut rates all the way to zero percent again, most likely in January, and keep them there until 2010.''

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net.
Last Updated: October 31, 2008 11:36 EDT

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Bloomberg.com: Worldwide

India Unexpectedly Cut Interest Rates to Spur Growth (Update3)

By Debarati Roy and Cherian Thomas

Nov. 1 (Bloomberg) -- India's central bank unexpectedly cut interest rates for the second time in two weeks and reduced the amount of money lenders must hold in reserve in a bid to protect the economy from the global slowdown.

The Reserve Bank of India lowered its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and cut the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.

The steps signal a U-turn from the Reserve Bank's policy stance just a week ago, when Governor Duvvuri Subbarao said a ``heightened vigil'' was needed to fight inflation. The U.S. Federal Reserve, the Bank of Japan and other central banks also slashed borrowing costs this week in an attempt to prevent a global credit crunch from pushing the world into recession.

``This is a strong message that growth has become the central bank's priority,'' said Sujan Hajra, chief economist at Anand Rathi Securities Ltd. in Mumbai. ``He has room to cut rates because global interest rates are coming down as well, and so the risk of a further weakening of the rupee is limited.''

Subbarao, who until last week placed equal emphasis on growth and inflation, said Oct. 25 he is concerned a weaker rupee may raise import costs and stoke inflation.

India's currency, which has fallen 20 percent since January, climbed 0.4 percent to 49.4575 per dollar from 49.675 on Oct. 29.

Growth `Moderation'

The Bank of Japan yesterday cut its key overnight lending rate by 20 basis points to 0.3 percent after the Fed three days ago lowered its target rate for overnight loans to 1 percent, matching a half-century low. Norway, China, Taiwan and Hong Kong also trimmed their benchmark rates this week.

India's decision to lower borrowing costs was taken ``in view of the ebbing of upside inflation risks and also to address concerns relating to the moderation in the growth momentum,'' the central bank said today.

Lower inflation has given Governor Subbarao, in the job for less than two months, more room to lower borrowing costs to stimulate growth. Inflation in India has dropped below 11 percent for the first time since May.

Wholesale prices rose 10.68 percent in the week to Oct. 18 from a year earlier after gaining 11.07 percent in the previous week. Economists had expected a 10.80 percent increase.

The central bank last week reduced its forecast for growth in Asia's third-largest economy to as low as 7.5 percent from 8 percent in the year to March 31.

Credit Squeeze

``It's a good set of measures that addresses the most pressing need of the hour, which is to ease liquidity constraints in the system'' and support growth, said Arvind Sampath, head of interest-rate trading at Standard Chartered Plc in Mumbai.

India's money-market rates have more than tripled in the past week, in contrast to the rest of Asia where the rates at which banks lend to each other has been declining.

The overnight call rate in India touched 21 percent yesterday. India's 10-year bonds gained, heading for their best month in almost a decade, on speculation policy makers will be forced to step up efforts to boost cash with banks and ease a credit squeeze.

Today's cut in the cash reserve ratio, the fourth in the past month, will infuse 400 billion rupees ($8 billion) into the financial system, the central bank said. Before today, the bank lowered the ratio by 2.5 percentage points in the past month.

The Reserve Bank also reduced for the first time in 11 years the statutory liquidity ratio, the amount of deposits that lenders need to invest in government debt or bonds of state-run companies, by one percentage point.

``This kind of fund injection is required to bring in stability in the financial market,'' said Jayesh Shroff, who helps manage about $6 billion at SBI Asset Management Co. ``The system has been under stress because of liquidity shortfall.''

Cash dried up in India's banking system as overseas investors pulled out $12.7 billion from India's stock markets.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net. Cherian Thomas in New Delhi at Cthomas1@bloomberg.net
Last Updated: November 1, 2008 06:02 EDT

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El futuro.... se parecera a esto?

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ya dan por hecho tipos de interés al 0% en todo el mundo

Bloomberg.com: Exclusive

Zero Rate World May Lie Ahead as King, Trichet Cut (Update4)

By Simon Kennedy and Craig Torres

Nov. 7 (Bloomberg) -- The age of free money may be at hand.

As major central banks slash interest rates with unexpected speed, benchmark borrowing costs are now below core inflation for the first time since the early 1980s, and policy makers are signaling they will go deeper.

Yesterday's cuts by the Bank of England and European Central Bank, which came with the Federal Reserve and Bank of Japan on the cusp of zero rates, are a bid to shock life back into their recessionary economies and strained money markets. It may be an uphill battle as consumers and businesses show greater interest in saving than spending, and banks hoard capital rather than lend it.

``It's the race to zero,'' said Stewart Robertson, an economist at Aviva Investors Ltd. in London, which manages about $230 billion. ``There's no obstacle to more rate cuts.''

The U.K. central bank led by Governor Mervyn King yesterday axed its benchmark rate to 3 percent, the lowest level since 1955. The reduction of 1.5 percentage points was the biggest in 16 years. The ECB followed with its second half-point cut in a month, to 3.25 percent, and President Jean-Claude Trichet declined to rule out further moves south.

The action in Europe, which extended to reductions in the Czech Republic, Switzerland and Denmark, followed decisions last week by the Fed to drop its key rate to 1 percent, matching the lowest in a half-century, and the Bank of Japan to cut to 0.3 percent in its first paring in seven years. The central bank of South Korea today cut its benchmark for a third time in a month.

Harsher Blows

Monetary policy is being eased because the 15-month credit crisis is inflicting harsher blows to growth and inflation than central bankers anticipated just two months ago. Yesterday the International Monetary Fund cut its month-old forecast for next year's global expansion to 2.2 percent from 3 percent, and predicted the first contraction in advanced economies since it was created in 1945. It estimated prices would rise just 1.4 percent in rich nations, less than half of this year's pace.

The conundrum for central banks is their rate cuts may still not be packing a punch, even on top of record injections of cash and a willingness to accept lower-rated collateral for their loans.

One reason: credit markets remain fragile, indicating financial institutions are still conserving cash after recording losses and writedowns of about $691 billion. The London interbank offered rate for three-month loans fell to 2.29 percent today from 4.82 percent on Oct. 10. The record drop still leaves Libor 129 basis points above the Fed's benchmark, compared with an average of 22 basis points in the five years before the global credit crisis began in August 2007.

Problems `Severe'

``The problems in money markets are still quite severe,'' said Dario Perkins, an economist at ABN Amro Holding NV in London. ``Market rates are above where central banks have their rates, and that's alarming them.''

Credit standards for loans to companies tightened ``significantly'' in the third quarter and will probably tighten again in the current quarter, the Frankfurt-based ECB said in its quarterly bank lending survey.

At the same time, companies and consumers are retrenching in the face of slowing growth and tighter credit. In the U.S., Cisco Systems Inc., the top maker of networking equipment, is forecasting the first revenue drop in five years because of the financial crisis. Across the Atlantic, Luxembourg-based ArcelorMittal, the world's biggest steelmaker, this week said diminished demand is forcing it to double production cuts.

Companies Retrenching

Automakers and retailers are among the companies being battered by a collapse in consumer demand. In Japan, Toyota Motor Corp., the world's second-largest, yesterday forecast the biggest drop in profit in at least 18 years. Macy's Inc., Target Corp. and Gap Inc. all posted October sales declines in the U.S.

U.S. payrolls shrank by 240,000 workers last month, the Labor Department said today, taking the two-month decline to the biggest since 2001. The jobless rate rose to 6.5 percent, the highest in 14 years.

Another complication for central banks is that some financial institutions are proving averse to passing on lower rates to borrowers. HSBC Holdings Plc, Barclays Plc and HBOS Plc are among U.K. mortgage lenders that have still to decide whether to follow the Bank of England's rate cut by paring their own standard variable rates. In the euro area, banks yesterday deposited a record 297.4 billion euros overnight with the ECB rather than lend it elsewhere.

``We expect the banking sector to make its contribution to restore confidence,'' Trichet said yesterday.

Cautious Banks

The combination of cautious banks and reluctant spenders is forcing central banks to cut interest rates below inflation. JPMorgan Chase & Co. calculates borrowing costs adjusted for underlying inflation in developed markets fell below zero last month for the first time since the early 1980s and are still declining.

Central banks are betting that negative real interest rates will induce people to spend rather than save money that is declining in value, economists said. The strategy also aims to jolt investors and banks into seeking higher yields by making riskier long-term loans.

``It's clear you need to have interest rates that are lower than inflation going forward,'' said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. ``Central banks are rushing to get interest rates down.''

`Too Early'

Still, it's ``far too early'' to talk about zero interest rates throughout the industrial world, given inflation expectations remain positive, says Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London.

``People should be wary of rushing to shift the debate from inflation to deflation,'' he said.

Rapid rate cuts are intended to avoid the fate of Japan, which endured a decade-long slump after its asset bubble burst in 1990 in part because its central bank was ``initially too timid and too slow to react,'' economists at Deutsche Bank AG said in a report yesterday.

As rates fall further, central banks will have to consider less conventional steps to cushion their economies. Among them: making a public commitment to keep rates low, and lowering long- term borrowing by pumping large amounts of cash into banks with direct purchases of government securities.

The debate over what comes next could begin at the Fed as soon as Dec. 16, when policy makers next meet amid expectations for another quarter-point cut.

``We've got a global deflationary environment now and central banks will have to respond,'' said Stuart Thomson, who helps oversee $46 billion in bonds at Resolution Investment Management.

To contact the reporters on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net.
Last Updated: November 7, 2008 10:30 EST

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el futuro de ese nikkei esta un poco mal no? como que le falta un tajo aun

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Análisis de Cárpatos y su equipo en Serenity Markets

Suiza
Su banco central recorta los tipos de interés en 100 puntos básicos. Por supuesto que esto anima al aumentar la visión de que el BCE los vuelva a recortar tras todo el mundo pensar que se quedó corto la última vez.

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¿Y los tipos al 0% en todo el planeta no suponen la muerte de facto del dinero fiduciario?¿Para que quieres ahorrar en algo que no te da interes ni rentabilidad? ¿Que sentido tiene ahorrar y meter tu dinero en un deposito o cuenta de ahorro con esas megarentabilidades?¿En esa circistancia ¿De donde sacaran los bancos sus depositos para hacer frente al credito?.



La crisis sigue su curso, todo esto estaba previsto pero ahora faltna las conclusiones y las consecuencias.

Alguien me puede decir qué se hace con los ahorros cuando los intereses están al 0%?

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Ya tenemos interés reales negativos.
Lo mismo que se hace ahora: el dinero murto de risa en el banquito pierde valor cada día.
El dinero es para trabajarlo no para que trabaje por ti.

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Lo que me preocupa mucho es que una japonesización de la economía sería la "salida buena" a la actual crisis. El famoso welcome to Tokio 1993 es lo menos malo. Y lamentablemente creo que va a ser peor que eso.

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