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The interest rate on the portion of the EU-IMF bailout for Ireland provided by
the International Monetary Fund, has been cut following a change in member
country quotas which took effect on Thursday.
A package of measures, agreed in 2008 to strengthen the representation of
dynamic economies in the IMF, has entered into force. The reform provides for
quota increases for 54 countries, with the largest gains going mainly to dynamic
emerging market countries, ranging from Korea, China and Turkey, to Brazil and
Mexico. The reform will also enhance the influence of low-income countries in
the IMF’s decision-making, including in its 24-member executive board.
Following calls by IMF managing director Dominique Strauss-Kahn for member
countries to formally ratify the agreement, which was backed by the IMF’s
governors in April 2008, the package has now been signed into law in 117 member
countries, representing 85.04% of total voting power in the IMF. This pushes the
package above the required 85% majority of voting power and approval by at least
113 member countries, which are needed for approval of these types of reforms.
“I commend our members for taking the required action to ratify this package
of reforms adopted in 2008,” said IMF managing director Dominique
Strauss-Kahn. “The implementation of this reform reflects the membership’s
commitment to strengthening the IMF’s effectiveness, credibility, and
The 2008 reforms were followed by another governance reform package agreed by
the IMF’s membership in December 2010 that, once effective, will lead to a
combined shift of about 9% of quota shares to dynamic emerging market and
developing countries. It will also protect the quota shares and voting power of
the IMF’s poorest member countries.
Once both packages are implemented, IMF representation will better reflect the
world economy as it looks today.
“It means we will have the top 10 shareholders that really represent the top
10 countries in the world, namely the United States, Japan, the four main
European countries, and the four BRICs,” Strauss-Kahn said.
The term “BRICS” collectively refer to Brazil, Russia, India, and China.
The IMF contributed €22.5bn to the total €85bn joint IMF/EU program for Ireland
on November 28, 2010.
The IMF said in a statement that
Ireland's quota at the IMF will increase from SDR (IMF's internal
currency: Special Drawing Rights) 838.4m to SDR 1,257.6m once the
payment for the quota increase is made. With the new higher quota,
Ireland's access to Fund resources under the Extended Fund Facility
arrangement is reduced to 1,548% of quota, compared with 2,322%
This reduces the share of Ireland's
credit that is subject to surcharges, which are due on amounts in
excess of 300% of quota. Based on the current SDR interest rate of
0.43%, the average lending interest rate at the peak level of access
under the arrangement will be 3.04% on credit outstanding less than
three years (down from 3.17%), and 3.85% on credit outstanding
longer than three years (down from 4.04%).
A second round of quota increases, approved
last year, will further reduce the average lending rate once countries'
governments have approved those changes.
Daniel Hui, FX strategist at HSBC, says the euro is valued fairly based on current rate hike expectations by the ECB:
US payrolls to rebound sharply in February: Davy economist, Conall Mac Coille, comments - -
"Stock prices rose sharply
yesterday following positive news on the US economy. The Dow Jones
industrial Average increased by 1.6% on the day and the S&P 500 by
1.7%. The non-manufacturing ISM survey for the services sector rose
to 59.7 in February from 59.3 in January, indicating that the pace
of expansion in the services sector continues to outperform
expectations. The services PMIs for European countries, also
released yesterday, were slightly weaker than expected but still
indicate a strong pace of expansion in that sector.
The market was also encouraged by a sharp fall in the level of
initial jobless claims to 368,000 for the week ending February 26th,
well below the expectation for 395,000 and the lowest level for
initial claims since May 2008. Prior to the recession, jobless
claims tended to average just over 300,000 so yesterday's data
indicate that inflows into unemployment are returning to more normal
levels as the US labour market stabilises.
And the initial jobless claims data followed positive signals for
the US labour market earlier this week from both the Federal
Reserve's Beige Book and the ADP employment report. The ADP report
indicated growth of employment of 217,000 in February, up from
187,000 in January and well ahead of the market's expectation for
180,000. And within yesterday's non-manufacturing ISM survey, the
employment index had risen to a four-and-a-half year high.
So the labour market data released this week bodes well for
today's non-farm payrolls report which will be the market's main
focus with few significant macroeconomic data releases scheduled for
today. Non-farm payrolls are expected to rise by 200,000 on the
month in February, up sharply from an increase of just 36,000 in
January. The low January number most likely reflected bad weather
conditions and is likely to be temporary. And given the recent
positive data on the US labour market, today's non-farm payrolls
report may well exceed expectations."
Sharing his concerns over what will happen to bond yields and stock prices, with William Gross, Pimco co-CIO/founder:
Economic View: Expected ECB rate hike an
unwelcome reality for Ireland; Goodbody's chief
economist, Dermot O’Leary, comments -- “Strong
vigilance” is back at the ECB. In line with its obsession with inflation, the
ECB hinted very strongly yesterday that it will increase interest rates in early
After stating that inflation risks could move
to the upside at its January meeting, the Governing Council judged yesterday
that that has, in fact, occurred. Since the beginning of the year, economic
data, especially for the core euro-zone has been strong. Along with this
improving momentum, inflation has been influenced by the spike in energy prices.
These trends are reflected in the updated ECB staff projections, which inflation
expected to average 2.3% (mid-point estimates) in 2011, up from its previous
forecast of 1.8%. Economic growth of 1.7% is anticipated in 2011 and 1.8% in
2012 (up from 1.4% and 1.7%, respectively).
Its inflation projection for 2012 was
increased to 1.7% (from 1.5%). Given that this is still below the 2% target, one
might ask what the hurry is, especially when core inflation is only at 1.1%.
However, it is clear that the ECB is no longer comfortable having rates at the
emergency setting of 1%. We don’t imagine rate hikes to be rapid from here but
it is clear that the up-cycle will begin earlier than we would have expected. We
are still of the view that two 0.25% rate hikes to 1.5% will occur this year,
but the risks to this forecast are now tilted to the upside.
The ECB did have some good news for Ireland, in that it will continue to provide
liquidity to the banking system, at least until the middle of July. It clearly
expects the size of the Irish banking system to be significantly smaller and
thus funding requirements lower by that time. On that front, continuation of its
liquidity is not a major surprise.
The earlier than expected rate hikes will hurt
an economy that is already hurting. In terms of its impact on consumer spending,
we estimate that every 1% increase in interest rates hits disposable incomes by
slightly more than 1%, if maintained for a full-year. Giving that disposable
incomes will fall on the back of higher taxes, lower employment and falling
earnings, this firms the view that consumer spending will fall this year. The
rise in rates will also likely drive up mortgage rates aswell, something to bear
in mind with the results of the PCAR exercise in the banks imminent. We have
said before that we think a return to stability in the banking system is more
important than the effects of interest rate increases (i.e. supply of credit is
more important that the cost of supply). We are still of this view but the
pressure is now firmly on with a rate hike on the way next month."
Irish Financials: Firesale auction to
gauge investor interest; Goodbody's Eamonn Hughes
comments -- "Official house price statistics in
Ireland show prices down 38% from the peak. Our own view is 50%, but even that
figure has been wavering in recent months, with a likely further downward bias.
The complete lack of activity in the market has been a problem (for instance,
the ptsb/esri index went quarterly from monthly a long time ago given the dearth
of property sales).
As such, finding the floor is still an ongoing
quest for property buyers and sellers across the country. Well, that comes ahead
of an auction by Allsops (which specialises in selling properties held by banks
and receivers) and a Dublin agent. A number of properties have a maximum reserve
price substantially below nearby properties which are also for sale on various
estate agent websites.
Of course, it’s hard to gauge the condition,
aspect and specific location of each individual property in the sale, but it’s
certainly going to be interesting to watch results in the April 15th auction as
a gauge of investor appetite. More than 80 properties in Dublin, Cork, Limerick
and Galway will be offered in the sale."
The Dow rose
191 points or 1.59% in New York Thursday to 12,258.
The S&P 500
gained 1.72% and the Nasdaq rose 1.84%.
MSCI Asia Pacific Index of shares rose 1.1% Friday.
Japan's Nikkei 225 climbed 1.02%; the China's Shanghai Composite added 1.35%;
Australia's S&P/ASX 200 Index gained 1.20% and the Bombay Stock Exchange's
Sensex index climbed 0.37% .
BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index
averaged 59% lower in 2009 than a year earlier.
Thursday, July 15, 2010, the index fell for the 35th straight session, by 9
points, or 0.537%, to 1,700 points,
On Friday July16th, the BDI rose 20
points or 1.12% to 1,700 to break the 35-session losing streak.
Thursday this week, the BDI rose 36 points or 2.81% to 1,317.
The Financial Times reported
earlier in January, that Australia’s flooding and fears of ship oversupply has
pushed down a gauge of the cost of hiring ships to carry coal, iron ore and
other dry bulk by nearly half since October to the lowest level since the
aftermath of the financial crisis. The Baltic Dry index, the widely watched
measure of dry bulk charter rates, fell to 1,453, nearly half the 2,784 peak
reached on October 27, 2010.
margin between the US benchmark WTI (West Texas Intermediate) used on the New
York Mercantile Exchange and Brent is at $13.
said in early February that a surge in oil inventories in Cushing, Oklahoma,
where WTI is delivered into America’s pipeline system, has depressed the value
of the benchmark against other yardsticks. The International Energy Agency said
on Thursday that with “few relief valves”
to cut the stock overhang in Cushing, the price dislocation
“may persist for months [or years] to come”.