Rates cuts Still Viewed as the Linchpin to Growth

The Yen barely moved against the dollar after the BoJ's decision to leave interest rates at .5 per cent after yesterday's meeting. It rose only by 0.3 per cent. to Y102.25. Over the last few months the Yen came under pressure as the markets were getting a semblance of stability following the capital injection by central banks, especially following the Bear Sterns debacle. Analyst initially thought that the support given by macro financial institutions around the world would increase the appetite again for riskier investment. However this feeling seems to be subdued with the report published yesterday by the IMF suggesting that the the credit crisis might be costing à 945bn cutting short the risk appetite throttle.

The easing will therefore continue and put the dollar under pressure. Yesterday the minutes from the Federal Reserves March meeting revealed that there was still a dominante dovish sentiment among the governors. The US economy is certainly slowing at a faster rate than what Fed had expected along with the less than expected inflationary pressure. As a result the financial watchdog institution will in all probabilty continue along the lines of more cuts. The weaker dollar that will inevitably result will not affect this line of conduct. Around the globe the dollar came again under pressure, falling against teh Swiss franc to 1.006, against the the euro droping to $1.5775 and against the pound at $1.9750.

The dollar's decline is notwithstanding the gloom that is shrouding the UK economy as consumer confidence index dropped to a four year low. The BoE will no doubt cut the rates this afternoon as a result but this action has yet to prove to be a stimulatory factor.

The ECB on the other hand will in all probability keeps it's rate on par. President Trichet is still concerned over inflationary pressures that he feels will grip the Eurozone economy. The ECB council is using the latest CPI numbers, which jumped to 3.5 % in March, as the reason. We are yet to see however a clear stance on growth prospects. Many analyst still predict a rate cut to come possibly to 3 per cent by early next year. What the data clearly shows nonetheless is a clear decline in economic activity, a factor the Council will have to address at some point.