The Bank of England opens a new front in its effort to ward off deflation today as it prepares to buy government bonds with newly created money. The central bank said today it will purchase 2 billion pounds ($2.7 billion) of gilts, its first deployment in a three- month plan that may see it spend 75 billion pounds. The results of the operation will be released after 2:45 p.m. in London.
And Trichet leaves room for further cuts on anemic fourth growth numbers after the ECB announcement to cut its refi rate to 1.5%. From Reuters (Trichet comment): "We did not decide ex ante that we were at the lowest level. If justified by facts, figures...if some of the risk that I am mentioning are materialising, I don't exclude that the policy rate could be changed and could go down."
The retrenchment in global demand is passing through to Malaysia's exports in January: Malaysia's January exports plunged 27.8 per cent year-on-year, hitting their lowest level since 2001 amid falling demand from key trading partners, according to official data released Friday.
China also showing a sharp decline in exports, with anemic demand for imports. In February, exports fell at a 26% annual rate and imports at a 24% rate. And according to Bloomberg, the Chinese government plans to take action: The government has halted the yuan’s gains against the dollar and plans to cut export taxes to zero as demand dries up because of the global slump. Premier Wen Jiabao is relying on a 4 trillion yuan ($585 billion) stimulus package to propel economic expansion after the weakest growth in seven years threw millions out of work.
Economists react to the sharp drop in China's February inflation rate. From WSJ's Real Time Economics: Inflationary pressures have weakened significantly in China during recent months, despite continued government efforts to boost domestic consumption in an attempt to build a more sustainable growth path for the economy. Steps taken thus far have involved direct subsidies for low-income households. For an average middle-class household, the habit of saving still outshines any temptation to spend. The central bank needs to cut interest rates now so that the incentives to save will diminish. — Sherman Chan, Moody’s Economist.com
And the Bank of Japan is holding on - February money supply is still growing, M2 at a 2.1% rate and M3 at a 1.1% rate. But is this enough to offset the downward price pressures coming from a strong yen, slumping exports, and anemic domestic demand?