Swiss Libor Rate Unchanged at 2.75%

Swiss National Bank chose to keep the national three-month Libor (interest rate) unchanged at 2.75% after it was increased by 0.25% back in September 2007. After this announcement Swiss franc gained a little against all other major currencies except the Japanese yen.
The reason to stop increasing the interest rates further came from two sides: first, Swiss National Bank (SNB) is expecting that GDP growth will be slowed down by the global instability – the fact that wasn’t foreseen in the September economy outlook; second, inflation rate is slowing down, which removes any fundamental base for another rate hike.
With the inflation rate at the expected 0.7% rate for 2007, SNB now has nothing to worry about – over-regulating something that is working fine is not a job for central banks:
The expected downturn in economic growth will result in an improved inflation outlook for 2009 and 2010. However, rising oil prices will temporarily push up inflation in the first half of 2008. Assuming that the three-month Libor remains unchanged at 2.75%, the National Bank expects an average annual inflation rate of 0.7% in 2007, 1.7% in 2008 and 1.5% in 2009. After having passed its peak in the first half of 2008, inflation is likely to stabilise below 2%.
This rate decision wasn’t a surprise for analysts and helped CHF to gain against other currencies. Only Japanese yen, which is growing after the Nikkei Index fell down by more than 2% today, showed more power against franc, gaining almost 0.5% against Swiss currency.

New Zealand Dollar Rises on Unchanged Rate

New Zealand dollar rose against all other major currencies after the Reserve Bank of New Zealand left the Official Cash Rate (OCR) – short-term lending interest rate – unchanged at 8.25%. And as it was hinted by Bank Governor Alan Bollard the rate is not likely to be lowered until 2009.
Alan Bollard marked labor market problems and the slowdown in housing sector as the main obstacles for the economical growth increasing:
Economic activity has occurred largely as outlined in the September Monetary Policy Statement. Capacity pressures – particularly in the labour market – remain significant, while the housing market has clearly slowed. A substantial income boost is still expected to occur through 2008, as recent dairy price gains reach farmers.
High interest rates in New Zealand for a long time were the main attractor for the Forex traders that favor carry trading. Keeping the rates at 8.25% gave NZD a significant boost against major currencies – NZD/USD increased by more than 0.8% and NZD/JPY gained more than 1.7%. However, this growth might be a temporary speculation which will see some correction today, but if carry trade survives, the general trend for New Zealand dollar will be definitely bullish.

U.A.E., Qatar, Bahrain and Saudi Arabia Cut Rates

The United Arab Emirates decided to cut their bank repository rate by 0.25% to 5.25%; Saudi Arabia decreased its benchmark rate for deposits also by 0.25% to 4.0%; Qatar and Bahrain reduced their deposit rates by the same amount – 0.25% to 4.0%. Kuwait refrained from changing the country’s interest rate, because they’ve already removed their currency’s peg to dollar back in May 2007.
This rate change followed the cut by U.S. Federal Reserve decision to lower the rate from 4.50% to 4.25% yesterday on December 11. Gulf countries, such as Saudi Arabia and U.A.E., started to peg their national currencies to dollar decades ago, and they have to maintain the similar interest rates to keep this peg up.
Lowering the interest rates goes against the general monetary policy of the Gulf countries in the way that it stimulates inflation, which is already very high due to the devalued dollar. Fighting inflation is an important task stated by the government of U.A.E. and this rate cut can only boost up the prices growth.
Although this step contradicts anti-inflation policy, it is almost doubtless that such a small rate change won’t hurt a lot. The possibly better side effect of this change would be another reason for consideration of the dollar peg abandonment by these oil countries.

Chilean Peso Hits Nine-Month High on Foreign-Exchange Selling Plan

A Chilean government plan is likely to continue to push the national currency up, as it will sell $40 million daily in the Foreign-Exchange market, boosting confidence for the South American currency.
The Chilean government affirmed in June 15 that a plan for economic stimulus will sell $4 billion dollars in $40 million allotments, as an effort to increase the influx of international assets to the South American economy. The current $4 billion program will follow a previous one which started in March offering daily $50 million in the forex markets. The Chilean peso has been favored since the global slump eased in the beginning of April, which resulted in a risk appetite rally for emergent-markets currencies, and like in Brazil, being Chile an emergent commodity exporter economy, the national currency witnessed sharp gains supported by the new wave of optimism in equities markets.
Economists agree that the Chilean government dollar sell plan is the main factor weighing positively to the national currency, it is likely that as long as plans like this will follow, investors will be confident enough to maintain the Chilean peso at high levels or even increase its gains. High-yielding currencies have been favored by a new wave of confidence on world markets, but since a cloud of confusion started to appear among traders, it is hard to determine whether high-yielding currencies will still continue their present climb.
USD/CLP traded at 538.85 as of 12:24 GMT rising from yesterday’s rate of 551.26.
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Canadian Dollar Falls as Stocks Decline

The loonie had a third week of losses as a fall in U.S. stocks and crude oil decreased the attractiveness for the high-yielding profile of the Canadian currency.
Canada is one of the world’s most important commodity producers, and being the U.S. its main exporting destination, a fall in their main stock indexes affected directly the outlook for the Canadian currency. Since signs of economic recovery started to appear two months ago, the price of crude oil and equities market around the world witnessed a sharp increase in their levels, and being the loonie a commodity-linked currency more attractive as risk appetite grows due to its high-yielding profile, it posted the highest gains in 59 years during the month of May following the rally in the crude oil price. As the price of stocks failed to continue its gains, Canada’s dollar entered its third week of losses, since risk aversion rebounded slightly, and commodities prices did not provide the necessary support for the loonie to maintain its high levels.
Economists refer the weak performance for the Canadian dollar also with a more solid outlook for the U.S. dollar, as investors realize that an economic chaos will not be installed in the U.S. and that the Federal Reserve stills in the control of the nation’s finances, the greenback rose, also forcing the Canadian currency further down.
USD/CAD closed the week at 1.1352 after having both high and downtrends during the week but the loonie lost 1.4 percent against from the start of the weekly session.
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