OECD says US, ECB seen raising rates this yr, but rates will remain low UPDATE
[Who the F is the OECD? anyone here know? - mish]
Monday, March 22, 2004 10:27:10 AM
PARIS (AFX) - The US Federal Reserve and the European Central Bank are expected to start edging interest rates higher this year, but in historical terms rates will remain low, the OECD said
Forward interest rates and futures contracts indicate that market participants expect US rates to rise some time in the second quarter, with euro zone rates rising somewhat later in the year, the OECD said in its semiannual Financial Market Trends report
Meanwhile, markets see a high probability of another rise in UK rates in the near future, and there are some indications that rates in Japan are expected to start picking up slightly this year, it added
But rates will remain at relatively low levels for some time in the major economies, it said
"Policy rates are likely to remain low, as the US economy has yet to show significant improvement in employment and in Europe, growth remains sluggish," the OECD said
The decline of the dollar against the euro has already provided a further easing of monetary conditions in the US and a tightening of conditions in the euro zone, it noted
The OECD said the euro zone economy is growing only sluggishly
"Growth in many continental European countries remains somewhat sluggish ... recently released figures for several European countries suggest that growth remains below expectations, as the strong euro has put some pressure on exports while household spending remains scant," it said
But recent data suggest that the Japanese economy may now be on a firmer path to recovery, and US fourth quarter GDP data are also consistent with a picture of an ongoing recovery, even if growth slowed from the robust pace recorded in the third quarter, the organisation said
US GDP growth slowed to an annualised 4.1 pct in the fourth quarter from an exceptionally high figure of 8.2 pct in the third quarter
Recent falls in confidence data in a number of countries do not yet mark a trend, and consumer and business confidence data continue to reflect a positive economic outlook, the OECD said
The impact of euro strength on euro zone exports has so far been more modest than expected, it said. It cited a JP Morgan Chase estimate that exports fell 4-8 pct in the fourth quarter, but said most companies have fared better than investors expected
The dollar's decline, meanwhile, has so far not led to any major reversal of the US current account deficit
Asia is going to have to bear a greater share of the burden of exchange rate adjustment if the US is to reduce its projected 2004 current account deficit of 585 bln usd, the OECD said
The Asia Pacific region is projected to have a current account surplus of 238 bln usd, compared with a surplus of just 49.7 bln for the euro zone, and some Asian countries have intervened heavily in foreign exchange markets to slow the appreciation of their currencies against the dollar
Hedging activities by euro zone exporters may also be delaying a further dollar decline in the short term, the OECD said
The sharing of the burden of future dollar depreciation is a key factor for financial market prospects, it said
"The outlook for financial markets depends importantly on how remaining imbalances are unwound. Among the more important factors is the adjustment in the exchange value of the US dollar. Thus far, the downward adjustment of the dollar has been orderly, if uneven in the rate of adjustment across major currencies," it said
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