Daily Archives: March 4, 2011

Bad day for Portugal. S&P has cut to junk the credit ratings of four state-owned utilities, saying the country’s sovereign debt troubles could limit the timeliness or sufficiency of help on offer from the government:

Government support for distressed state-owned companies was “increasingly constrained by difficult financial conditions”. This was also reflected in the “weak access” of Portuguese banks to external funding, S&P said. 

James Politi

A war of words and numbers has broken out in Washington over the geekiest of subjects: which budget baseline should be used to calculate the level of spending cuts being negotiated by the White House and congressional leaders.

On Thursday afternoon, Gene Sperling, director of the National Economic Council, announced that the Obama administration was putting on the table an additional $6.5bn in spending cuts to woo Republicans into a deal before March 18, the new deadline for a government shutdown. At least everyone agrees on those basic facts.

Here’s where things get tricky. Mr Sperling said that with those cuts, the White House was meeting Republicans “halfway” compared to their own spending targets – a clear sign of the administration’s willingness to negotiate. 

It’s only five basis points but it’s the direction that matters. Federal reserve banks cut the seasonal discount rate at its last meeting to 0.2 per cent.

The seasonal discount rate is typically aimed at small banks in agricultural or tourist areas, where businesses’ and individuals’ borrowing needs are highly seasonal. The rate, as you can see, has gone lower, to 0.15 per cent. During talk of green shoots in mid-2010, the seasonal rate reached the heady heights of 0.35 per cent before heading down to a fortnight spell at 0.2 per cent in November. To give some context, the average since 1996 is 3.5 per cent.

Maybe charity doesn’t pay, after all.

The founding assumption of my earlier post has proven incorrect, for which I apologise. To set the record straight, ECB national accounts show that the central bank held more like 18 per cent than 8 per cent of bonds bought to aid sovereigns in distress. 

Indonesia has held rates after tightening them for the first time since 2008 at its last meeting – but said this should not be interpreted as a change of direction. “This decision does not change the direction of Bank Indonesia’s monetary policy that is tending to be tight to manage high inflationary pressures,” said the Bank.

Inflation in south-east Asia’s largest economy is above target but falling. Prices rose by more than 7 per cent in the year to January. This fell to 6.84 per cent in the year to February, and the head of Indonesia’s statistics body sees March inflation at a similar or lower level. The target is 5 per cent +/- 1 per cent.