SINGAPORE: The euro rose above $1.34 in Asia on Monday after France and Germany vowed swift action to shore up Europe's struggling banks, analysts said.

The single European unit bought $1.3450 in the morning compared with $1.3375 in New York late Friday, while it sat at 103.20 yen from 103.10 yen.
The greenback traded at 76.75 yen from 76.73 yen.
The euro fell below $1.34 late Friday after Fitch downgraded the ratings of Italy and Spain, citing increasing pressure on them as the eurozone debt crisis makes efforts to stabilise their public finances even more difficult.
But Emmanuel Ng, currency economist of OCBC Bank in Singapore, told the "market is attempting to push the euro higher against the dollar".
Ng stated that the euro rally was led by traders encouraged by a promise from German Chancellor Angela Merkel and French President Nicolas Sarkozy on Sunday promising action to recapitalise troubled lenders within weeks.
"I think it's just from the spillover from the weekend comments arising out of the Merkel-Sarkozy meeting so it's just newsflow regarding the potential (bank) recapitalisation plans," he said.
Without announcing concrete details about the plans, Sarkozy said there would be "lasting, global and quick responses before the end of the month", amid rampant fears of a crippling credit crunch.
The news could ease concerns over a lack of direction in the eurozone leadership as France and Germany, the two main powerhouses of the bloc, had been at odds over the best way to recapitalise the region's banks.
It also comes a few weeks ahead of a G20 summit in Cannes, at which Sarkozy said Europe must "arrive at the (meeting) united and with the problems resolved". (AFP)

http://www.thenews.com.pk/NewsDetail.aspx?ID=24265&title=Euro-lifted-by-France-Germany-plan

Sunday, 9 October 2011

Huge discount rate cut surprises market

KARACHI, Oct 8: The State Bank on Saturday threw a pleasant surprise by chopping off its policy rate by 150bps above the market expectations, but analysts critical about the huge cut in view of changing of base-year to show declining inflationary trend.

The SBP brought down the discount rate to 12 per cent for October-November from 13.5 per cent. However most of the market experts were anticipating a cut of 50 basis points.

It was expected that the SBP would adopt a strategy of gradual decrease in the rates to avoid any upheaval in the economy. In July 2011 the discount rate was cut by 50 basis points after keeping it on the higher side since 2008 to fight double-digit inflation.

The government failing to rope in price hike has recently changed the base year for calculating inflation to 2008, the year when average inflation was 20 per cent.

Some analysts think the SBP move will energise the economy.

“This surprising cut suggests that the central bank is focusing on economic growth at a time when IMF support is not there,” said Mohammad Sohail, CEO of Topline Securities.

He said the decision may put some pressure on the rupee while equity and bonds would rally.

The business community welcoming the move said that it was long over due. “I must say it is positive and will definitely stir economic growth while the 150bps cut in policy rate may translate in two per cent decline in lending rate to corporate
sector,” said Saleem Parekh, former chairman SITE Association.

He added that it would also encourage long-term investment, which is almost nil at this moment.

The business community has been criticising the State Bank to keep such a high interest rate that did not allow the private sector to borrow for long term planning or expansion of existing units.

For some analysts the government would be the biggest beneficiary of this low interest rate since it has been the biggest borrower for last three years from the banking system.

Only last year the government made record borrowing of Rs598 billion from the scheduled banks and Rs247 billion in the first quarter of the current fiscal 2012.

“First the government is the real beneficiary and secondly the lower inflation is not as low as being shown because the base-year has been changed,” said Syed Shahid Iqbal, a money market expert.

However, he said the overall situation might see some relaxation for private sector provided the government reduces its borrowing.

The State Bank expected lower GDP growth and also expressed concern over exports. “The likelihood of falling short of the annual GDP growth target has increased due to damaging impact of recent flood in Sindh,” it said.

“The rapidly deteriorating global economic conditions, especially in Pakistan’s export-destination countries, do not provide much confidence either,” said the SBP

Source: http://www.dawn.com/2011/10/09/huge-discount-rate-cut-surprises-market.html

Also View http://www.dawn.com/2011/10/08/sbp-cuts-key-policy-rate-by-150-bps-to-12-pc.html for SBP cuts key policy rate by 150 bps to 12 pc