20100408 0939 Global Economic News.

US consumer borrowing fell the most in three months in February, declining by US$11.5bn or 5.6% yoy in February (vs. +US$10.6bn or +5.2% yoy in Jan). This reflects weakness in revolving loans (i.e. credit cards) which dropped 13.6% and non-revolving loans (i.e. auto loans) which fell 1.6%.

• It marks a setback to hopes that consumers are beginning to feel more confident and will start spending more. This came in weaker than the small US$500m gain that economists had expected. (CNBC)

Federal Reserve Chairman Ben Bernanke said the economy still faces significant headwinds, including a housing sector that has yet to recover convincingly and an ailing employment market. The central bank chief was in no rush to begin raising interest rates. Against that backdrop, the Fed chairman saw no immediate reason to be worried about inflation, which he characterized as ''well controlled." (CNBC)

Kansas City Federal Reserve Bank President Thomas Hoenig said that although an accommodative monetary policy is still warranted to promote economic recovery, he proposes that the Fed move "soon" to raise the federal funds rate toward a still accommodative 1%.

• Hoenig, a voting member of the Fed's policymaking Federal Open Market Committee, warned that by holding the funds rate near zero and advertising its expectation that it will stay there "for an extended period," the FOMC is risking financial imbalances and other problems. (Xinhua)

William Dudley, president of the New York Federal Reserve Bank, argued that asset price bubbles do exist but that in most cases macro prudential tools are more effective in tackling sharp rises in asset prices, rather than relying on monetary policy that is "too broad." Assessing whether there is a bubble or the size of the prospective bubble is going to be very challenging for central banks. (Xinhua)

The chances of enacting financial reform this year are getting better and should include some type of ban on proprietary trading by banks, White House economic adviser Paul Volcker said. He thinks a bill could be ready for President Barack Obama's signature shortly before or after the Congressional recess in August. Dubbed "the Volcker rule," it also would ban banks from the hedge fund business and limit their future growth. (CNBC)

Thailand Prime Minister Abhisit Vejjajiva conceded the enforcement of Internal Security Act (ISA) had failed to deter the protests by the red shirts. Abhisit then deemed it necessary to invoke a state of emergency decree over Bangkok. Deputy Prime Minister Suthep Suban has been appointed to supervise the emergency rule. (The Nation)

The World Bank expects Thailand's gross domestic product (GDP) to expand 6.2% this year, up from a contraction of 2.3% last year, according to its East Asia & Pacific Economic Update, released yesterday. The bank's earlier forecast was 3.5%. Despite a pick-up in domestic consumption in the fourth quarter last year, exports would be the main contributor to growth in the near term, said the World Bank's report. The Bank projected that Thailand's exports would expand by 11.5% yoy up from a contraction of 13.9% last year. (The Nation)

Any increase in Thailand’s interest rates will have only a “marginal” impact on the economy because borrowing costs are at a historical low, Finance Minister Korn Chatikavanij said.

• “They (Bank of Thailand) already indicated that that’s exactly what they’ll do,” Korn said. “The only question in my mind is whether the current political situation would delay their decision to send a signal to the market that the era of historically low rates may be over.” 
• Thailand did “very well” in the first quarter even though the protests hurt growth in March, Korn said. (Bloomberg)

The Group of Seven’s economic recovery is likely to be sustained at a slower pace in the first half of this year with the US outpacing Japan and the euro area, according to the Organization for Economic Cooperation and Development (OECD). The G-7 economy grew 1.9% in the first three months of the year from the prior period on an annualized basis and will expand 2.3% in the current quarter, it said. That follows growth of 3.7% in the final quarter of last year. (Bloomberg)

Europe’s Purchasing Managers’ Composite Index of services and manufacturing rose to 55.9 from 53.7 in February. That’s the fastest pace since Aug 07 and above an initial estimate of 55.5 published on 24 Mar. (Bloomberg)

Europe’s economy unexpectedly stagnated in 4Q09 as companies cut spending more than previously estimated. Gross domestic product in the 16-nation euro region remained unchanged compared with the third quarter, when it rose 0.4%. It had previously reported a fourth-quarter expansion of 0.1%. Corporate investment dropped 1.3% instead of the 0.8% estimated earlier. (Bloomberg)

The Bank of England will keep the benchmark interest rate at a record low of 0.5% until at least November because the economic recovery remains “vulnerable,” the British Chambers of Commerce (BCC) said. “In the last forecast, we envisaged an increase to 0.75% in August and to 1.0% at the end of the year,” BCC Chief Economist David Kern said. (Bloomberg)

The Bank of Japan refrained from expanding measures to fight deflation and Governor Masaaki Shirakawa said a return to recession is unlikely as the recovery begins to sustain itself. It also left the key interest rate at 0.1%. “We have confirmed that the economy is currently picking up steadily and on top of that, we are seeing some signs of future progress,” Shirakawa said. (Bloomberg)

China’s central bank said it will sell three-year bills for the first time since Jun 08, prompting speculation it is preparing to raise interest rates and allow gains in the yuan to help curb inflation. The sale of Rmb15bn (US$2.2bn) in the securities today will be followed by issuance every two weeks, the People’s Bank of China said. (Bloomberg)

China is considering allowing the yuan to trade against the Russian ruble, South Korean won and Malaysian ringgit to promote its use in cross-border trade, an official at the China Foreign Exchange Trade System said. The People’s Bank of China is investigating the possibility of offering new currency pairs. (Bloomberg)

The Philippines may need to raise interest rates this year as the economy improves, central bank Deputy Governor Diwa Guinigundo said. “I’m sure we may have to consider an upward adjustment in the policy rate. But at this point, given that the recovery continues to gain more traction and inflation expectations continue to be benign, we can still afford to keep our policy rates,” he said. (Bloomberg)

The Indonesian government raised its proposed oil price assumption for the revised 2010 state budget to US$80/bbl from US$77, Evita Legowo, director general of oil and gas at the nation’s energy ministry, said. (Bloomberg)

Singapore’s central bank will favor a stronger currency by October to curb inflation and catch up with regional peers in withdrawing economic stimulus, a survey Of economists showed. (Bloomberg)

East Asian economies have emerged stronger from the global crisis and may experience “rapid growth” in coming years, the World Bank said, adding it’s still premature for many nations to withdraw the fiscal stimulus that has helped mitigate the effects of the slowdown.

• Emerging East Asia, which excludes Japan and the Indian subcontinent, will expand 7.6% this year, more than a November estimate of 6.4%. The World Bank has upgraded its growth forecast for Developing East Asia this year by almost 1% pt higher to 8.7%. China’s economy may expand 9.5% this year. (Bloomberg)