EUR

OECD: ECB Should Raise Rates Gradually After Late 2010
FRANKFURT (MNI) The European Central Bank should maintain its
ultra-loose monetary policy stance until end-2010, embarking on a
gradual tightening cycle thereafter as the economic recovery gathers
momentum, the OECD said in its latest Economic Outlook, published
Wednesday.
While significantly hiking both growth and inflation projections,
the OECD said that weak price pressures and a persistent negative
output gap argue for maintaining the very accommodative monetary policy
stance until late 2010 and for liquidity support to be removed only
gradually.
After late 2010, the main policy rate should be gradually
increasedas the recovery gathers momentum, the report said, adding
that financial turbulence needs to be addressed by strengthening the
European financial regulatory and supervisory architecture rather than
through monetary policy.
Recently, more and more analysts have pushed back their rate hike
expectations well into 2011.
The OECD also urged the ECB to sterilize the bonds it is purchasing
under its new Securities Markets Programme, as planned, so as to avoid
inflationary pressures and anchor [inflation] expectations.
For now, inflation expectations appear to remain well anchored,
the organization said.
Looking more closely at the economic outlook, the OECD noted that
competitiveness has been boosted by the depreciation of the euro and
GDP growth is projected to strengthen over the coming quarters as
exports benefit from the rebound in world trade.
The new economic outlook sees GDP growth of 1.2% in 2010 and 1.8%
in 2011, an upward revision from projections of 0.9% and 1.7%,
respectively, projected in November. Inflation is seen at 1.4% in 2010,
compared with 0.9% in the previous forecast, and 1.0% in 2011, compared
with a previous figure of 0.7%.
Consumption is also likely to pick up further, aided by higher
financial wealth, stabilization of house prices and low real interest
rates, though being offset somewhat by the weakness in the labour market
and deleveraging by highly indebted households, the report said.
Investment is likely to recover only gradually in the coming
quarters, held back by remaining excess capacity, weak growth prospects
as well as continued credit constraints, the OECD projected. Concerns
over credit quality and the health of the banking system remain ripe as
European banks are unlikely to have cleaned their balance sheets of all
toxic assets, it warned.
As more robust world growth boosts exports and financial
conditions improve further, private non-residential investment should
start to make a more substantial contribution to the overall recovery.
However, in some countries the process may be held back by over-capacity
in structurally weak industries, according to the OECD.
Risks to the outlook are broadly balanced but considerable
uncertainty continues to surround the projections, the OECD warned.
The euro area economy remains sensitive to changes in financial
conditions and developments in world demand, which can surprise on the
upside, the report said. At the same time, the pace of fiscal
consolidation and its dampening effect on demand is a significant
downside risk.
The fiscal adjustment needs and difficulties in restoring
competitiveness in some euro area countries may complicate recovery and
monetary policy exit, the OECD warned. It called on Eurozone
governments to set out credible and transparent plans to restore sound
public finances, based primarily on expenditure reduction measures.
Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com

OECD Chief Economist Paddan: Euro Has Been Overvalued For Too Long Le Figaro

Weaker euro in short-term is good news for euro zone economy
No risk of double dip recession in euro zone
Gradual yuan rise desireable
Comments, especially headline one, have helped fuel EUR/USD slide, presently down at 1.2263.

Pairing down at 1.2273 at writing from North American close Tuesday up around 1.2340. Asian sovereigns noted selling into rally above 1.2350. Guys Again 1.2350 playing an important sup/res level here, if you remember Euro jumped to recent lower high's once it broken that level last week. So 1.2350 to play an important barrier in days ahead.

Market noted Fed Chairman Ben Bernankes comment that Fed doesnt want to be providing USD swaps as a permanent service.
Euro zone data little thin on the ground this morning:

i still repeat euro is blade

ECB Nowotny: Must Stem Spread Of Crisis, Avert Vicious Circle
Says ECBs Current Monetary Policy Stance Is Appropriate
BRUSSELS (MNI) Avoiding a vicious cycle is the biggest challenge
facing policy-makers, and that is the key aim of the bold measures taken
recently, European Central Bank Governing Council member Ewald Nowotny
said on Tuesday.
The big challenge is to prevent a vicious circle, he said, adding
that the bold measures should be seen exactly as a way to avoid such a
vicious cycle.
We have been able to prevent a meltdown of the world economy,
Nowotny told delegates at a conference here.
The ECB slashed interest rates and deployed a range of
unconventional measures to help shore up the Eurozone economy during the
financial crisis, including generous lending and buying bonds on the
secondary market.
Some market-watchers say the most recent round of extraordinary
action, particularly the purchase of government debt, has dented the
central banks credibility and undermined the perception that it is
politically independent.
Nowotny said the ECB was a fiercely independent central bank.
From our point of view, our present monetary policy stance is
appropriate, he said, adding that the central bank wasnt engaging in
any form of quantitative easing, because it was sterilizing its
purchases of government bonds.
Nowotny also highlighted the challenge facing Europes public
finances.
In general, the good times were not used to build up reserves for
the bad times, he said, and this is something that has to be taken up
now.

Be carefull of the swiss SNB,trying to repeat last weeks intervention,particularly after london close,that worked pretty well last week.