“This is as dovish as the ECB can get without actually acting,” said Christoph Rieger, the head of fixed-rate strategy at Commerzbank AG in Frankfurt.
“The new ECB stance should give investors comfort that the upside to yields is limited at current levels.”
According to Draghi, the ECB chose words over deeds after an extensive discussion about cutting interest rates, and the support for the new language was unanimous. He said the bank kept an open mind on whether to cut the deposit rate below zero.
“The Governing Council had all options on the table this month and will keep them there in case things worsen again,” said Christian Schulz, senior economist at Berenberg Bank in London.
“This time, they decided against another rate cut and decided to stage a mini revolution by introducing forward guidance instead.”
The Stoxx 600 Index was 2.4 percent higher at 292.24 at 4:18 p.m. in Frankfurt. The euro declined to as low as $1.2883 from $1.2985 before the press conference. The yield on Portugal’s 10-year bond yield, which climbed as high as 8.11 percent, slid to as low as 7.11 percent.
By using so-called forward guidance, Draghi’s aim is to persuade investors that the ECB has no plans to end its easy policy stance so they in turn will keep longer-term rates low, paving the way for consumers and households to borrow cheaply and bolster economic activity. Historically, Draghi and predecessor Jean-Claude Trichet have said that the ECB never precommits to any future monetary policy.
Draghi said the reason for taking what he called an unprecedented step was the ECB’s expectation that the subdued outlook for inflation will extend into the medium-term amid broad-based weakness in the 17-nation eurozone economy.
“The risks surrounding the economic outlook for the eurozone continue to be on the downside,” Draghi said, pointing to recent tightening in global financial conditions as one threat.
While all 23 members of the council agreed on the new strategy, Draghi declined to specify a time frame for the extended period and said several forms of guidance were debated.
The ECB has not built formal frameworks or set specific economic targets for when policy makers assess the course of rates, according to an official familiar with the central bank’s deliberations.
Instead, ECB officials will rely on the central bank’s traditional “two-pillar” approach, a setup that looks at both money supply and a range of economic indicators.
At the same time, Carney and colleagues in the UK signaled they’ll keep their key rate at 0.5 percent for longer than investors expected. The implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy, the BOE said in a statement.
Portugal May Re-Ignite Europe Crisis
Political turmoil in Portugal is threatening to re-ignite Europe’s debt crisis after a year of relative calm.
Having won praise for taking tough measures to restore the financial health of the eurozone state, Portugal’s government has been rocked this week by the resignation of two ministers who quit because of waning public support for its program of austerity, CNNMoney wrote.
Prime Minister Pedro Passos Coelho has refused to accept the resignation of his foreign minister, who heads a junior partner in the center-right coalition. But anxious investors sold stocks and bonds heavily on fears that the government may collapse.
Portuguese media said two other ministers could follow their party leader in tendering their resignation. New elections could delay economic reforms and prolong Portugal’s dependence on bailout funds.
Portugal signed up for a 78-billion-euro bailout from the European Union and International Monetary Fund in 2011, and was hoping to exit the program in mid-2014.
Its economy has paid a heavy price for the spending cuts and structural reforms demanded in return for the rescue loans. Gross domestic product is forecast to shrink by 2.3 percent in 2013, a third consecutive year of recession, and unemployment has hit a record high of close to 18 percent.
The government has found it increasingly difficult to meet the terms of its bailout--some measures have been struck down by the constitutional court--and Portugal was givenextra time earlier this year to hit EU budget deficit rules.
Any further backsliding by Portugal could encourage other bailed-out states such as Greece and Cyprus to seek concessions from lenders as they struggle to meet the conditions.
Portugal has emerged as a new serious risk to the grand political bargain in the eurozone of support from the core and reforms in the periphery, noted Berenberg Bank senior economist Christian Schulz.
Greece has until Monday to satisfy officials from the EU and IMF that its reforms are on track or risk missing out on its latest tranche of rescue cash.
On Monday, Eurozone finance ministers will review a progress report on Greece. EU sources said there are still a number of outstanding issues--such as public sector job losses, privatization receipts and health sector reform--to be resolved before ministers can allow the tranche to be disbursed.
World Islamic Economic Forum Planned
London is set to become the first western city to host the annual World Economic Islamic Forum (WIEF).
The forum, set to be held in the city’s Excel Centre in October, was launched by Malaysian Prime Minister Dato Sri Mohamed Najib Tun Abdul Razak and Mayor of London Boris Johnson at a meeting in the city, Asharq Al-Awsat wrote.
The forum’s previous sessions have been held in Malaysia, Kazakhstan, Indonesia, Kuwait and Pakistan but will be held in London this year in collaboration with London & Partners, the official promotional organization for the city.
Chief Executive Officer of London and Partners Gordon Innes told Asharq Al-Awsat, “We started liaising with the representative of the WIEF and discussing that it would be great to bring the forum to a western city. They really liked the idea and, of course, London was the first option given that it is so international and has a huge Muslim population as well as international bureaus and a number of international companies.”
Innes also highlighted the existing trade links between London and various firms and countries in the Muslimc world.
“London hosts the most significant Islamic finance cluster outside of Muslim countries. London is really the only center in the west that has such depth and expertise in this field,” Innes said.
“Islamic finance is a relatively small part of the turnover in the city at the moment but it’s the fastest growing part of local finance at about 25 percent per year . . . It isn’t just the banks that are issuing Islamic compliance bond, but there are also more than 25 law firms within this field.”
There are also 22 Shariah-compliant banks in London and Saudi Arabia is the second largest foreign investor in the UK after the US.
Innes also cited the example of the Shard, London’s 72-story skyscraper and the tallest building in the European Union, which is largely financed and run by Qatar’s sovereign wealth fund. Kuwait is allocating $5 billion to investments in the UK.
The WIEF is a Malaysia-based business platform that displays business opportunities in the Muslim world and strengthens exchange and collaboration between Muslim and non-Muslim countries.
The forum is run by the WIEF Foundation, which is permanently based in the Malaysian capital of Kuala Lumpur.
Tun Musa Hitam, chairman of the forum, speaking at the launch of the forum, described it as an attempt to build bridges toward peace and prosperity between the Muslim and non-Muslim world through the common language of business.
Sri Lanka Gets ADB Facility
Sri Lanka’s reform and development initiative has got a major boost with the finalization of a combined $500 million financial support from the Asian Development Bank (ADB), the organization said in a statement.
The ADB has agreed to extend $300 million for a non-revenue water management program in central Colombo, in addition to $200 million for education sector development, Xinhua reported.
For the latter, the ADB’s loans comprise $100 million from ordinary capital resources and $100 million from its concessional Asian Development Fund.
The government’s overall program is set to cost $4.9 billion, according to the bank.
The Finance Ministry said the ADB and the government signed the first tranche of $84 million under the multi-tranche credit line for implementation of the non-revenue water management program in the Greater Colombo area.
Pakistan Agrees to $5.3b IMF Loan
Pakistan’s newly elected government has agreed to a $5.3 billion (£3.5 billion) loan with the International Monetary Fund (IMF).
The three-year loan will replenish the central bank’s reserves and buy time for the government to cut its budget deficit and fix the energy sector.
Prime Minister Nawaz Sharif won elections in May in Pakistan’s first democratic change of government, BBC reported.
Among the new government’s priorities are dealing with frequent power cuts and increasing its tax collection.
Technical and financial problems in the energy sector have led to large-scale power outages, which have depressed output and imposed hardship on the public at large, the IMF noted in its announcement of the agreement.
As part of the deal, the government has also agreed to cut its over-spending, in part by eliminating subsidies and tax loopholes in order to increase the amount of taxes it collects.
TSE Among World’s Top 10
Tehran Stock Exchange (TSE) is among the world’s top ten stock markets and the best performing equity market among the member-states of the World Federation of Exchanges (WFE) during the first half of 2013.
TSE has also registered the best performance among WFE members over the last two years, Bloomberg wrote.
Based on the figures released by the American outlet, since the beginning of 2013, Egypt Stock Exchange’s main index lost 14.2 percent of its value while those of Dubai, Abu Dhabi and Kuwait’s stock exchanges posted growth rates of 37 percent, 34.6 percent and 33.3 percent, respectively, over the same period.
During last week’s trading sessions, however, the Arab world stock markets, except those of Egypt and Qatar, staged a negative performance with the exchanges of Dubai, Abu Dhabi and Kuwait dipping by 5.9 percent, 2.5 percent, and over 1 percent, respectively.
The main index of TSE, TEPIX, is continuing its upward rise and set a new record in July once again in terms of trade volume, despite fresh US-engineered sanctions against Iran.
On Wednesday, TSE closed at 52,735 at the end of the transaction day.
Bandar Lengeh Earns $25m
The port city of Bandar Lengeh exported 56,667 tons of goods during March 21-June 21, up 66 percent compared with the corresponding figure of last year.
Announcing the above, Davoud Dehqan, the head of the city’s customs office, put the value of exports at $25 million in this period.
The official noted that Arab states, namely UAE, Iraq and Kuwait, were major target markets.
“Vegetables and fruits, dates, watermelons and camels accounted for a large portion of exports in the period,” he said.
Dehqan also said 23,628 tons of commodities worth $56.1 million were imported through Bandar Lengeh’s Customs, indicating a decline of 51 percent from a year ago.
“Sunflower seeds, cereals, computer parts and home appliances were among imports,” he said.
Dehqan added that 22,810 units of cars valued at $233.1 million were transited to Afghanistan, Iraq and the Central Asian states in the period.
Bandar Lengeh, Shahid Rajaei, Shahid Bahonar and Qeshm ports rank among the most important customs of the southern province of Hormuzgan.
Fishery Exports Up
The export of fishery products is projected to exceed $300 million by the end of the current Iranian year (started March 21).
According to a repot by Customs Administration of Iran, over 60,000 tons of fishery products worth $250,000 were exported last year.
The export of fishery products, including caviar, fish and shrimp, has earned the country over $900 million since the current government took office in 2005.
The weight of exports amounted to 280,000 tons in this period.
The output showed a threefold rise in terms of weight and a twofold growth in terms of value compared with the correspondent figure during 1997-2005.
On aggregate, over 110,000 tons of fishery products valued at $518 million were exported during 1997-2005.
On average, around 39,000 tons of fishery products earned $128 million worth of revenues on a yearly basis during 2005-2013.
The annual revenue from fishery exports during 1997-2005 stood at $64.86 million and 13.8 tons in terms of value and weight respectively.
Canada’s Trade Balance Down
Canada’s trade balance deficit dropped in May, Statistics Canada reported from Ottawa. From April to May, trade gap dropped from $951 million to $303 million.