Out of step with Ben

13 September 2007 By Martin Hutchinson

The Swiss National Bank raised its target interest rate. And British, European and Japanese central banks are all biased towards tightening. The worldwide inflation problem isn t going away. A domesticallymotivated US rate cut might have to be reversed rapidly.

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The Swiss National Bank on September 13 raised its target Swiss Franc threemonth Libor range by 0.25% to 2.25%3.25%. Swiss inflation is running at 0.6% in 2007, but is expected to rise to 1.5% in 2008. Swiss Franc 3month Libor was around 2.9% at that time.

The ECB maintained its rate at 4% at its meeting on September 6. The Bank of England's Monetary Policy Committee maintained its rate at 5.75% on September 6. Governor Mervyn King warned on September 12 that monetary easing and liquidity provision could sow the seeds of a future financial crisis.

The Bank of Japan voted by an 81 majority August 23 to maintain its target uncollateralized overnight call rate at 0.5%; the next Monetary Policy Meeting is due September 19.

The Federal Open Market Committee meets September 18; in the futures market the expectation is that it will cut the Federal Funds rate by ½% from its current 5.25%.

The volume of US asset backed commercial paper outstanding dropped by $238bn, or 20% in the 6 weeks to September 12. The volume of other US commercial paper outstanding was down $68bn or 6% in the same period.

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