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Prospects Daily: ECB holds interest rates at 0.75%, Germany’s industrial production increased, Brazil’s inflation accelerated

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Financial MarketsSpanish borrowing costs climbed with an average yield on the €2 billion 3-year bonds rising to 2.823% at a new bond auction on Thursday, up from 2.476% in January auction, amid political corruption scandal. The Spanish Treasury also sold a 2019 bond with a yield of 4.123%, up from 3.770% a month ago, and it auctioned a 2029 bond at the yield of 5.787%, compared with 5.555% at its previous auction.

Brent crude (March futures) climbed as much as $1.10 to $117.83 a barrel today (a 4-month high) in early London trading amid increased investor risk appetite; WTI (West Texas Intermediate, a mid-western US indicator) was up as well at $96.78 a barrel in New York (March contract). The Brent premium over WTI rose for a seventh day to exceed $20/barrel.

Shanghai Composite Index dropped 0.7% on Thursday, snapping an eight-day gain of 6.3%, reflecting a drop in financial and property stocks following central bank’s signal to shift its focus on inflation. Profit-taking among investors in the wake of the big rally also contributed to the loss, particularly for banking shares.

High-income Economies…The European Central Bank (ECB) left its key refinancing rate unchanged at 0.75% foreseeing a weak economic activity in the Euro Area in the first part of 2013 before an anticipated gradual recovery. The Euro Area inflation eased to 2.0% (y/y) in January, consistent with the ECB 0-2% targeted inflation range, indicating a continued weak demand and subdued economic activity.

The Bank of England (BOE) maintained its Bank Rate at 0.5% and target for asset purchases at 375 billion pounds, indicating its readiness to provide additional monetary stimulus if warranted by growth and inflation outlook. The UK's headline inflation remained above the bank’s 2% target throughout Q42012 limiting a room for further monetary easing.

U.K. industrial production growth accelerated to 1.1% (m/m) in December from 0.2% in November and manufacturing output surged 1.6% reversing a 0.3% contraction over the same period. On an annual basis, contraction of industrial output slowed to 1.7% (y/y) in December from 2.4% in November. Manufacturing output declined by 1.5% (y/y) in December, slower than 2% in November.

Germany's industrial production increased 0.3% (m/m) in December, following a 0.2% decline in November. On an annual basis, production fell 1.1% (y/y) in December, less than a 3.1% (y/y) decline observed in November.

Developing EconomiesBrazil’s inflation accelerated in January to 6.15% (y/y), up from 5.84% in December. This is at the upper end of the central bank’s 4.5% +/- 2% inflation targeted range. January inflation was the highest monthly inflation (0.86% m/m) observed in Brazil since April 2005.

industrial production rebounded in December to 2.4% (y/y) from 1.8(y/y) in November led by production of electricity, gas and steam.

A revised estimate of India's GDP showed that growth slowed to 5.0% in the 2012 fiscal year (ending March 2013) due to weak output in agriculture, manufacturing, and services. This is lower than the 6.2% growth posted the year before and also the slowest growth rate in a decade.

Mexico’s inflation declined for the fifth straight month in January to 3.25% (y/y) from 3.57% (y/y) in December and is within the central bank’s 3% +/- 1 percentage point target.

South Africa manufacturing expanded at a slower rate in December growing 2% (y/y) compared to 3.7% in November.