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*TOP NEWS* Global Economy
Reuters: [2008-05-19 23:19:00]
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Banks' confidence to ease turbulence -ECB's Paramo
Reuters: [2008-05-19 22:01:00]
MADRID, May 19 (Reuters) - The current turbulence in money markets can only ease when banks recover mutual confidence, European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said on Monday.
Gonzalez-Paramo told a seminar in Madrid that the ECB had been able to reduce liquidity problems and stabilise the financial system but could not be expected to solve banks' inherent problems.
"The current market difficulties will only attenuate when banks recover mutual confidence and uncertainty over their liquidity needs is reduced," Gonzalez-Paramo said.
Average inflation in the euro zone in the past 10 years had slightly overtaken the ECB's target of 2 percent despite pressure in recent years from rising food and oil prices, he added.
"The important thing is for price stability to be maintained in the medium term, i.e. once the disturbance has gone, so the medium- and long-term inflationary outlook must be held below 2 percent," Gonzalez-Paramo said.
For the full text of Gonzalez-Paramo's speech in Spanish, click on: http://www.ecb.int/press/key/date/2008/html/sp080519.es.html (Reporting by Martin Roberts; Editing by Jonathan Oatis) ((martin.roberts@reuters.com; +34 91 585 2130; Reuters Messaging: martin.roberts1.reuters.com@reuters.net)) Keywords: ECB/GONZALEZPARAMO
UPDATE 2-Ghana ups prime rate 175bp to curb fuel,food prices
Reuters: [2008-05-19 20:02:00]
(Adds single-digit inflation target dropped, quotes, analyst)
By Kwasi Kpodo
ACCRA, May 19 (Reuters) - The Bank of Ghana raised its prime interest rate by a bigger-than-expected 175 basis points to 16 percent on Monday to try to control inflation driven by rising food and fuel prices, Governor Paul Acquah said.
Acquah said Ghana's 6.3 percent growth target for 2008 was still on track, but business confidence had slackened in the first quarter and another target of nearly halving inflation to 8 percent by the end of the year now appeared unattainable.
"It is not possible, as things look now. We have been outlining our inflation profile for this year and it keeps going up, primarily due to the impact of oil prices on the economy," Acquah told reporters after a Monetary Policy Committee meeting.
"Given that perspective, the 2008 (inflation) forecast cannot in realistic terms stay on target of a single digit," he said.
Record high world crude oil prices and surging global prices for basic food commodities like rice and wheat have forced up inflation rates in many countries, hitting hard many African countries where food is the biggest household expense.
"Inflation and cost-price pressures have increased amid rising and volatile oil prices and a surge in food prices," Acquah said.
Ghana is the world's second biggest cocoa exporter and Africa's second biggest gold producer. Oil reserves discovered last year are not due to start flowing for another 2-3 years.
At its last meeting in March, the committee raised the prime rate by 75 basis points to 14.25 percent. Since then, annual inflation surged to 15.3 percent in April from 13.8 percent the previous month -- the sharpest rise this year.
"Uncertainty about developing inflation has weighed down business and consumer confidence while the general assessment of economic prospects remains strongly positive," Acquah said.
Razia Khan, of Standard Chartered bank in London, said the rate rise was "much more than the market had been anticipating".
She said the rise would lend near-term support to Ghana's cedi currency <GHS=>, which Acquah said had depreciated by 3.2 percent on a trade-weighted basis between January and April.
But in the longer term, Khan said the cedi would continue to come under downwards pressure unless Ghana reduced its dependency on costly crude oil imports, in particular by addressing domestic utility subsidies.
COCOA, GOLD UNDERPIN GROWTH
Acquah said Ghana's economy was nevertheless in good shape.
"I still think we will achieve our target of 6.3 percent GDP growth by the close of year. Our economy is still fairly resilient and robust," he said.
The average price for Ghanaian cocoa bean exports rose to $2,091.80 per tonne at the end of March, up 7.7 percent from the end of December, Acquah said. Total cocoa exports for the first quarter of 2008 rose to $401.5 million, from $382.27 million a year earlier.
Gold export prices rose to an average $916.60 per ounce over the same period, up 17.8 percent on the previous quarter and 42.4 percent year-on-year. Gold exports rose in value to $608.9 million in the first quarter of 2008, up from $395.0 million a year earlier and $486.4 million in the previous quarter.
But those increased revenues were countered by increased prices for crude oil, of which Ghana imports about $2.6 billion a year.
Average weekly prices for benchmark Brent crude oil <LCOc1> were up at $115.28 by the end of April, up 22.5 percent from late December and 70 percent year on year, Acquah said. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com) (Writing by Alistair Thomson) ((dakar.newsroom@reuters.com; +221 33 864 5076; Reuters Messaging: alistair.thomson.reuters.com@reuters.net))
Keywords: GHANA RATES/
*TOP NEWS* Financial Analysis
Reuters: [2008-05-19 19:36:00]
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FED FOCUS-Fed hawks ponder rate hike but policy seen on hold
Reuters: [2008-05-19 19:33:00]
By Alister Bull
WASHINGTON, May 19 (Reuters) - A few Federal Reserve policy-makers have begun talking openly about the need to raise interest rates, but it appears more likely the U.S. central bank will stay on hold until early 2009.
Inflation-wary hawks have stressed in recent speeches the need to remove the central bank's muscular policy easing, which has seen it slash the benchmark overnight federal funds rate by 3.25 percentage points to 2 percent since mid-September.
At the same time, Fed officials who had been more dovish and worried about growth have also been talking. Their message is that the current level of rates remains appropriate.
The remarks, together with better-than-expected economic data, have financial futures markets seeing a 46 percent chance of a quarter point rate hike at the bank's meeting at the end of October and a 64 percent chance of an increase by year end.
But Fed watchers say the betting is premature.
"We expect a long hold ... until March 2009, when they start hiking," said Brian Sack, a former senior economist at the Fed Board and now with Macroeconomic Advisers.
"My sense is that they are in watch and wait mode. There is a lot of discussion of inflation risks, but I am skeptical that they are at a turning point," he said.
Rising prices for fuel and food have hurt American pocketbooks even as the slowdown in the U.S. housing market crimps economic growth and lending conditions remain tight.
Probably the best reason to expect the U.S. central bank to stay on hold for a prolonged stretch is Fed Chairman Ben Bernanke, who continues to worry about fragile credit market conditions.
Bernanke said last week that markets were healing but remained "far from normal" and "moribund."
"He is emphasizing that it is going to take a while for credit conditions to improve. So, implicitly, we can read that as saying that he likely doesn't see policy tightening for some time," said Sack.
Investor eagerness to anticipate the resumption of rate hikes also replays market missteps during previous policy-easing campaigns, said economists at Citigroup.
"The pattern in forward markets is not unlike previous easing cycle endpoints in 1992 and 2003 when investors prematurely anticipated rising rates and ultimately had to throttle back as evidence of a sustainable recovery lagged," they wrote in a note to clients on Friday.
HAWKS VS DOVES
Bernanke and his number two, Donald Kohn, have used speeches to signal changes in the Fed's stance as it battled the housing crisis and credit crunch.
Their guidance has been essential because the Fed has been clearly split between hawks concerned about inflation and other policy-makers fearful the fallout from the housing crisis could tip the economy into a prolonged and painful recession.
The two camps are back in the spotlight.
Kansas City Federal Reserve Bank President Thomas Hoenig and Dallas Fed President Richard Fisher both voiced worry over inflation in recent speeches, with Hoenig talking about taking back the rate cuts at some stage.
Fisher, together with Philadelphia Fed President Charles Plosser, voted against the last rate cut.
San Francisco Fed chief Janet Yellen, who has been among the officials sounding the most worried about growth, also stressed the risks of inflation. But she said it was premature to start talking about when to raise rates.
Her balanced assessment was echoed by Atlanta Fed President Dennis Lockhart and Charles Evans of the Chicago Fed.
"All of this uncertainty and diversity of opinion probably puts the fed funds rate at a 2 percent floor at this juncture," said Lynn Reaser, chief economist at Bank of America Capital Management in Boston.
The Fed lowered rates by a quarter point to 2 percent at its last meeting at the end of April but removed an explicit bias to continue easing.
Markets took that as a sign it was pausing the rate cut campaign to give its earlier reductions a chance to work, while giving a nod to inflation concerns amid soaring energy and food prices.
That impression has hardened after a series of economic releases that came in a bit better than expected -- or at least no worse -- and after no policy-maker tried to suggest an alterative reading of the statement.
"All policy-makers believe that a 2 percent funds rate is not a level that can be sustained with the objective of keeping inflation in check ... it is more a question of the timing of the tightening," said Reaser, who looks for a hike in 2009. (Editing by Andrea Ricci) ((alister.bull@thomsonreuters.com; +1-202-354-5820; Reuters Messaging: alister.bull.reuters.com@reuters.net)) Keywords: USA FED/
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