many thnx for ure analysis pak jt Dari Morgan stanley global economics team,buat global view,kebetulan dapet forward dr temen..
hehehe
In This Issue
Global
More Cuts, and What Else?
UAE
An Unexpected Decision
View GEF Archive
The Global Economics Team
Joachim Fels
Joachim Fels is a Managing Director and Morgan Stanley's Chief Global
Fixed Income Economist and Strategist.
Read about other GEF team members
The great monetary easing continues. Since the publication of last Wednesday's
The Global Monetary Analyst, no less than six central banks - the Reserve Bank
of New Zealand (100bp), the Swedish Riksbank (50bp), the Bank of Korea (75bp),
the Bank of Israel (25bp), the People's Bank of China (27bp) and the Norges
Bank (50bp) - have lowered official rates. In the near future, we expect the
following central banks to do the same:
. Later today, the Fed is likely to announce a 50bp cut in the fed
funds target to 1.0%. While this is not a done deal yet, our US economists
believe that even if the Fed surprises by keeping rates on hold today, an
inter-meeting cut before the next FOMC meeting on December 16 would be likely
in response to the ugly news from the real economy that appears to lie ahead.
. This coming Friday, the Bank of Japan now looks likely to either
cut the official target policy rate by 25bp to 0.25% or at least sanction an
easing of the effective overnight call rate towards that level - a move which
Takehiro Sato calls a "stealth easing".
. On November 4, the Reserve Bank of Australia, which front-ran the
coordinated global rate cuts earlier this month with a 100bp reduction in the
cash rate, may cut rates by another 50bp to 5.5%, even though Gerard Minack
believes that the RBA is more likely to wait until December as the AUD tumbled
since the last meeting and the government announced a 4Q fiscal boost.
. On November 6, the European Central Bank is expected to cut its
refi rate by another 50bp to 3.25%, according to Elga Bartsch (who was
appointed to the ECB Shadow Council this month - congratulations!). Anything
but a cut would be a disappointment following recent dovish comments by ECB
President Trichet.
. On the same day, the Bank of England's MPC will most likely vote
for a 50bp reduction of the base rate to 4.0%, according to our UK economists.
A very substantial easing. Together with the rate cuts already announced during
October, these steps imply a very substantial easing in global monetary policy.
They complement the many other measures that have already been implemented in
recent weeks and months, most notably the unlimited provision of liquidity to
banks by several major central banks including the Fed and the ECB
(quantitative easing), public capital injections into banks, guaranties for
bank liabilities, and liquidity backstops for money market funds and commercial
paper issuers.
Thinking unconventional measures. Naturally, investors worry deeply whether
these measures will be sufficient to stabilise the financial sector and prevent
an economic depression. We think so, but would be the first to admit that the
degree of uncertainty is very high. However, we feel sure that the authorities
will keep using all available means to address the problems if things don't
stabilise in the coming weeks and months. What could this entail? Here's a
highly subjective and patchy list of possible actions that might still be taken
if the measures enacted so far don't help:
. If needed, there is no reason why official interest rates could not
be cut all the way down to zero.
. Central banks such as the Fed and the ECB already provide unlimited
liquidity against collateral. If this is not sufficient, they could engage in
unsecured lending to banks.
. Central banks could start to buy private sector assets such as
equities or corporate bonds directly, in order to stabilise prices.
. Also, central banks could start to make loans to the private sector
directly in order to alleviate the credit crunch.
. Governments could 'persuade' banks, especially those that receive a
capital injection and/or a liability guarantee from them, to keep lending to
the private sector.
. Or, governments could simply nationalise a large part of the
banking sector and instruct banks to lend.
To be clear, we are neither saying that such steps are desirable, nor that they
are particularly likely. Also, there are several legal and technical hurdles
that would have to be overcome. However, we do believe that, if needed, central
banks and governments would be willing and able to take even highly
unconventional measures such as these or others in order to prevent the great
unraveling. In the Great Depression, policymakers stood by watching most of
the time. In Japan in the 1990s, policymakers waited for several years into the
stagnation and deflation phase before contemplating and then enacting some of
the measures that have already been put in place in the current turmoil. This
time, the message from policymakers appears to be that it will not be allowed
to happen again.
Bottom line. Massive policy action has already been taken, and more is to come,
both from central banks and governments. In our view, even highly unorthodox
measures such as zero interest rates, direct central bank lending to the
private sector, heavy government interference with private banks' lending
policies or large-scale bank nationalisations cannot be excluded. In short, we
believe that the authorities will do whatever it takes to prevent a depression.
While a global recession appears unavoidable, we believe that markets have
gone too far in pricing in a multi-year deflationary outcome
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