S & P Downgrades Italy’s Credit Rating; RBA Policy Minutes Confirm a Neutral Bias
Overnight, Standard and Poor’s downgraded the long term credit rating in Italy from A+ to A (one level lower), with a negative outlook, on the argument that growth rates are expected to weaken and contagion effects have not been fully contained.
Political impasses are also seen as an obstacle as legislation to reduce debt will not be met with a clear majority vote. This downgrade will increase concerns in the Eurozone as a whole and force regional finance ministers to implement their austerity plans sooner rather than later.
In Australia, minutes from the last RBA policy meeting showed little deviation from the previous statement, with the central bank saying that growth risks remain due to external uncertainties but that these factors could help to balance domestic inflation levels.
Overall, the minutes suggested that the RBA is in no hurry to raise rates and regional equity markets saw a modest lift after the release. On the whole, however, the European debt story remains the central focus and risk sentiment is still seen trading heavy. The EUR/USD trades near the lows at 1.3580-1.3680 looking similar at USD/JPY 76.40-76.70.
In Switzerland, the SNB monetary policy figures for the previous week saw total Swiss Franc sight deposits averaging 247.5 billion CHF. Government growth forecasts were also released, with the revised GDP expectations calling for an increase of +1.9 % for 2011 (downwardly revised from +2.1%).
For 2012, the Swiss finance ministry is looking for a rise of (+1.5% was the previous forecast). These figures are slightly lower than most analyst estimates and shows that the SNB expects the recent value of the CHF to weigh heavily on exports and drag down total GDP for the medium term.
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