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Prospects Daily: Consumer confidence eases in the US, Russia’s financial markets retreat on Cyprus bailout, Turkey and Vietnam cut policy rates

Financial Markets… Japanese government bonds rallied today, sending 10- and 20-year yields to near decade lows of 0.525% and 1.41% respectively, after the nations’ central bank signaled increased purchases of long-term maturity bonds. The 30-year bond yield fell as well, touching a 2 1/2-year low of 1.545%.

Russian shares retreated for a 3rd day, with the Micex Index sliding 0.9% and the dollar-denominated RTS Index dropping 1.2%, reflecting the fall-out from the Cyprus bailout agreement. Russian banks and corporations were estimated to hold some $31 billion in Cypriot banks at the end of 2012, and another $29 billion has been loaned to Cypriot companies with origin in Russia.

High-income Economies…In the US, the Conference Board’s consumer confidence index March fell to 59.7 in March from 68 in February, in a first sign that the recent budget sequester is hurting sentiment. Spending has remained resilient thus far, and may continue to do so if the housing market recovery is sustained. Data released today show that S&P/Case-Shiller home price index for 20 leading cities rose 8.1% (y/y) in January, the largest annual increase since June 2006, with all cities posting gains. The index bottomed out in March 2012 and has continued to increase since then.

Separately US core capital goods orders fell in February by 0.5% (m/m sa) following a 2.9% gain in January. However core orders were up 17.0% on a 3m/3m saar basis  in February (vs. 19% in January) indicating rising capital spending in Q1.
Consumer confidence in France and Italy weakened in March on growing concerns on the economic outlook, rising unemployment and, in Italy, growing political uncertainty.

Hungary's central bank lowered its policy rate by 25 basis points to 5.25% following a similar reduction in February. With inflation decelerating, the benchmark rate has been cut every month since July 2012 to support the economy which has been heading deeper into recession.

Developing EconomiesEast Asia and Pacific: Vietnam’s central bank cut its refinancing rate by one point to 8% and its discount rate by one percentage point to 6% as inflation eased to 6.6% (y/y) in March, down from 7.0% in February. This is a seventh time the central bank has cut rates in little more than a year in an attempt to stimulate the economy which grew by 5% in 2012, the weakest pace in 13 years.

Europe and Central Asia: Turkey's central bank lowered its overnight lending rate, the ceiling of the interest rate corridor, by 100 basis points to 7.5%, following two cuts of 25 basis points each at the previous two rate-setting sessions. The central bank, which started narrowing the corridor in September last year, left the overnight borrowing rate, the floor of the rate corridor, unchanged at 4.5%. It also kept its benchmark repo rate unchanged at 5.5%. Turkey's annual inflation fell to 7.03% (y/y) in February from 7.31% (y/y) in January, and is still above the 5% target.

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