Draghi’s promise on interest rates splits ECB watchers

Australian Jobs

In a sign that the global recovery is uneven, Australia recorded its first back-to-back jobs decline in more than two years. The number of people employed fell 10,800 in August from the previous month, when it dropped a revised 11,400, the statistics bureau said in Sydney today. Unemployment rose to a four-year high of 5.8%, from 5.7% in July.

Prime Minister-elect Tony Abbott’s coalition won office on Sept. 7 pledging to lower taxes and cut red tape in order to spur the $1.5 trillion economy as a China-led mining investment boom crests. Traders are pricing in a 40% chance the Reserve Bank of Australia will cut rates by the end of this year, compared with 38% before the release, according to interest-rate swaps data compiled by Bloomberg.

Vague Guidance

While the ECB still has room to tweak its guidance, which doesn’t specify a time frame or link its rates to economic indicators, that path isn’t necessarily any more successful in containing the market.

Bank of England Governor Mark Carney said today that investors pushing up U.K. borrowing costs are betting that unemployment will fall faster than policy makers predict. The BOE has pledged to keep rates low until unemployment falls to 7%. The guidance includes so-called knockouts linked to the bank’s 2% inflation goal.

“Draghi’s forward guidance has been only partly or moderately successful as he failed to bring rate-hike expectations down,” said Duncan De Vries, an economist at NIBC Bank NV in The Hague. Even so, he “succeeded in the ECB’s mission to keep short-term rates relatively low and therefore the yield curve steep, despite the vagueness of the guidance and improving economic conditions.”


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