Follow Paul Donovan

Rate cuts, rate rises

| Posted by: Paul Donovan | Tags: Paul Donovan

  • China cut interest rates a quarter point over the weekend, but also (again) raised the deposit ceiling. Normally a rate cut transfers wealth from savers to borrowers, but in this instance (depending on the impact of the deposit ceiling move) it may be about transferring from banks to borrowers.
  • The UK election giving a degree of political certainty, for now, the Bank of England gets to opine on interest rates. We do not expect a change (and it would be an increase, not a cut), but some guidance to the future would be useful. UK disinflation forces are temporary, and the Bank has already tightened quantitative and regulatory policy.
  • Greece meets Euro area finance ministers with the German finance minister warning that countries can accidentally default (Germany has not, of course. Germany has only ever deliberately defaulted). We do not expect much clarity from the meeting.
  • Greece has an IMF payment due tomorrow, which the government says it can make. Meanwhile the Greeks are asking for recognition on the amount of progress they have made - the Greek economy is three quarters of its pre-crisis size; not perhaps progress, but a signal of the price Greece has had to pay.