InvestMacro Forex News

By Bill Bonner

We came up to the family ranch in northwest Argentina about a week ago. But the “sustainable” power system we installed turned out not to be very sustainable. The juice was off.

So were we also cut off from foolish opinions. Spared nonsense news. We didn’t know what was happening in the big world of politics, economics and show biz. It was good while it lasted.

Our power system is a marvel of modern technology. It takes the sun’s intense, high altitude energy and turns it into nothing at all. Where does all that energy go?

It seems to defy the first law thermodynamics. No one seems to know. It is supposed to produce heat and electricity. In practice, it produces little of anything — unless you spend a lot of money and use a lot of fossil fuel to bring parts and technicians up from Salta City, about five or six hours away.

They fiddle with it. They replace parts. They tell us how bad the system is. And somehow, at great expense and aggravation, they get the juice flowing again.

Around the Fire

Thus were we cut off from news, opinion and claptrap for a few days… when our friends Doug Casey and John Mauldin arrived for a visit.

With time on our hands and no “news” in our faces we sat around the fire and talked.

“What do you think will happen?” was the subject, along with a few empty wine bottles, on the table.

“Well,” said John, “of course I don’t know any better than you do. But what I see is a long period in which the bug heads for the windshield, but doesn’t hit it.

“Japan shows us how long and how far you can run down this road without a major accident. And America is a richer country. And now we have plenty of energy. So we don’t have that to worry about. We could have a major bull market on our hands, as people switch out of bonds and put all this extra money to work in the stock market.

“Overall, I’m not pessimistic. This is not to say there won’t be a major disaster down the road. But it could be a long way down the road.”

“I don’t know either,” Doug added. “But I see this whole thing blowing up. I mean really blowing up. And it could happen any time. We all talk about the central banks and what they are doing as though they really were a fact of life. They’re not. They’re an embarrassment of modern life.

“People think the central bankers know what they are doing… or at least that they won’t make a major mistake. But they clearly have no idea. These are the same guys who thought the collapse of subprime debt was nothing to worry about. And now they’re doing things that used to be illegal and shameful. And they are going to lead the developed world’s financial system to a huge catastrophe.

“Of course, I’m optimistic too… because when that happens a lot of people will realize that we don’t need these central bankers manipulating things. A few years from now, I don’t think there will be any central banks. And that’s a good thing.”

“I’m with you guys,” we joined the discussion. “Deleveraging has to end sometime. We’ve been steering toward Tokyo for the last four years — since Lehman Brothers bit the dust — with very little of the Fed’s money getting into the real economy.

“But at some point, we’re going to change course… and head for the pampas. It’s going to be the kind of “crack-up boom’ Mises wrote about. Or like Argentina in the 1980s. Prices went crazy as people tried to protect themselves from printing press money.”

Cui Bono?

Here in Argentina, what they don’t know about a financial crisis is not worth knowing.

“Everybody’s talking about how Cyprus stole money from its savers to pay off its lenders. That’s what Argentina did too. It froze bank accounts and forcibly devalued dollar accounts to pesos. But instead of ripping off savers for 10% of their money, like the Cypriots, the Argentines took 66%.

“Governments do not go out of business. They do whatever they have to do to keep the lights on and the payoffs flowing.”

Right now, we all agreed, the governments of the developed world are doing the same thing as Argentina and Cyprus — but in a more sophisticated form. Artificial and ultra-low interest rates penalize savers.

Who benefits? Lenders… bankers… and the zombies.

More to come from Finca Gualfin — where the power is back on!

Regards,

Bill

By Jim Nelson

Last week, the Fed released the results for the latest round of stress testing of 18 big U.S. banks.

These tests are supposed to show how low banks’ capital ratios would fall under their proposed plans for dividend hikes and stock buybacks under “severely adverse” economic conditions.

The Fed approved the capital plans of 14 of the 18 banks it tested.

It conditionally approved another two, as long as they resubmit their dividend and share buyback plans to the Fed by the end of the third quarter. These were JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc. (NYSE:GS) – two of the more aggressive dividend payers.

JPMorgan Chase will hike its quarterly dividend payment 15% and spend another $6 billion on share buybacks. Goldman Sachs hasn’t yet made its plan public.

Of the other 14 to get the green light, Wells Fargo & Co. (NYSE:WFC), American Express Co. (NYSE:AXP), U.S. Bancorp (NYSE:USB), Regions Financial Corporation (NYSE:RF) and Fifth Third Bancorp (NASDAQ:FITB) have already announced dividend hikes.

This is dangerous. In fact, I can almost guarantee you’ll lose money if you buy them now.

As I pointed out last week, these banks haven’t yet been stress-tested using the new Basel III rules – which will require them to hold more of their capital in reserves. And if they were, they wouldn’t likely pass as easily as they
did this time around.

But it gets worse…

Because even if you never buy another bank stock, you may still end up owning some – and suffering the consequences once Basel III gets ahold of them.

The culprit: ETFs. And more specifically dividend ETFs.

Dividend ETFs are becoming more and more popular – especially with investors now forced to reach for yield in the stock market as a result of the Fed wiping out yields in bonds.

Take the iShares Dow Jones Select Dividend ETF (NYSE:DVY). This tracks the performance of the 100 highest dividend payers in the S&P 500.

DVY pays a yield of 3.4% – not great, but not too shabby either. The problem is its exposure to dividend-paying bank stocks.

Prior to the 2008 meltdown, 42.5% of DVY’s holdings were in the bank stocks now under scrutiny by the Fed. (These were among best dividend-paying stocks before the housing bubble burst.)

But that changed when bank stocks started cutting their dividend payments during the financial crisis. Now, financial sector dividend payers make up just 10%.

But that’s about to change, as banks get the all-clear from the Fed to hike their dividend payments again.

If you own DVY… or any other U.S. equity dividend ETFs… go to its website and check out its sector allocation. See if it is adding banks back into its portfolio. If it is, I recommend you sell it immediately.

When Basel III comes into effect in 2015, these banks will be forced to hold on to more of their capital. That means they’ll have to cut their dividend payments.

Bank stocks may look attractive right now. But they are NOT a smart way to add stable income streams to your portfolio.

Avoid these temporary dividend payers and the ETFs that hold them.

Sincerely,

Jim

P.S. I recently uncovered something even more dangerous to your financial well-being than bank dividend stocks. It
could have a major impact on not only your investments, but your way of life. I urge you to check out my brand-new report explaining it all…

Source: Stockopedia – Stock Market Research Network.

Understanding analyst research, who writes it and what it tells you 

Over the past 15 years, DIY investors have enjoyed some notable improvements in the availability of market data and sophisticated execution capabilities. But while the tools to make investment decisions have got better, one issue that continues to divide opinion is the usefulness amp; availability of analyst research. 

Most investors are familiar with the ‘buy’ and ‘sell’ recommendations from City analysts that routinely crop up in the financial press. Journalists feast on these signals without necessarily giving them much thought or context, and bulletin boards buzz about their meaning. But the detailed research behind these recommendations is often either hidden away or leaves the investor wondering about its reliability, accuracy and value. 

In this mini-series of articles we are going to explore some of the reasons why analyst research is both loved and loathed by investors and whether trading off recommendations it a viable strategy. We will also show you how you can profit from analyst research by using the tricks, tools and screens available at Stockopedia to get a new insight into what it really means. 

Who writes this stuff? 

If the stockmarket is an engine and information is the oil then analysts are best thought of as the mechanics. They may not enjoy the glamour or compensation of the traders and investors who drive the car, but without analysts the engine would soon grind to a halt. When Richard Wyckoff wrote Studies in Ticker Tape Reading back in 1910, he not only introduced the world to the science of market analysis but he also kicked off increasing academic and professional interest in how markets and companies can and should be analysed. 

Since then the role of the analyst has become more defined and more influential – but has also come under major scrutiny from regulators and academics. Research notes are routinely produced on the day of company results (final and interim), trading updates and major news. Analysts enjoy special access to management teams when discussing events, forecasts and in the development of their financial models, which means that their insight and opinions ought to be of interest to any investor, although often it is restricted to a privileged few. 

Who is research produced for? 

Market players – from investment banks to boutique brokers – employ analysts to cover companies, advise clients and ultimately encourage them to trade shares. But structural problems in a sometimes myopic market mean that the information and insight they produce doesn’t get to everyone. Unless you are a client of the firm in question, getting your hands on the research notes of the best analysts can be a challenge. Often this information is only designed for the eyes of institutions that pay fees or offer fixed-commission business, with disclaimers and restrictions stemming the flow to a broader base of recipients. This situation led the United States to introduce Regulation Fair Disclosure back in 2000 to ensure that sell-side analysts were not getting access to special information from management which is not available to the market at large. 

On this side of the pond, things are lamentably much further behind. However, the emergence of independent research houses, which often charge companies for coverage, has tried to open the door to a great deal more independent analysis. This work is distributed for free and is therefore more widely accessible by individual investors. The London Stock Exchange has encouraged this type of fee-based research, particularly for smaller companies, as a means of improving visibility and liquidity. Smaller companies often don’t attract mainstream research beyond what a house broker might produce, which can be a deterrent to both institutions and individuals that might otherwise want to invest. As a result, fee-based research has flourished, though the impartiality of the research produced under these arrangements should be questioned. 

How reliable are the opinions? 

While the selective dissemination of research is a bugbear of information-hungry investors, it isn’t the only criticism of analyst coverage. Over the past ten years regulators and academics have scrutinised the independence of analyst forecasts, their accuracy and how predictive they really are. An interesting observation here is that there is a weight of evidence that analysts issue far more ‘buy’ recommendations than they do ‘sells’. This is believed to be the case because a bullish stance encourages trading and makes corporate clients happy even though it might not necessarily reflect the reality of the fundamentals. 

Changes have been made in the way analyst notes are presented, such as clarifying the relationships between the company and the broker, but many believe that a lot of research can still be biased and of varying quality. In some instances, it’s claimed, research notes can turn out to be at best just a rehash of company news rather than thoughtful analysis or, at worst, a biased siren song ahead of impending calamity. 

In large and mid-cap stocks, the credibility of analyst research is likely to be improved by the number of analysts covering the stocks. Usually, multiple analysts from a broad range of banks and brokers will put out notes, making it easier to identify divergence from what’s known as the ‘consensus’ view. At this higher end, the concerns tend to focus on whether there is any movement of information between Chinese walls inside investment banks and the pressures that an analyst might feel if, say, his firm also provides corporate finance advice, investment banking or even brokerage services to the company. Some observers suggest that analysts from the house broker will be among the most conservative of all the analysts tracking a company, perhaps with a view to letting the company beat forecasts – and hopefully seeing its share price rise as a result. 

Further down the scale, the research supporting smaller, less liquid companies presents different issues. AIM companies can, and often do, hire Nominated Advisers (the buffer between the company and the stock exchange) that also act as brokers. This doubling-up means that it’s possible for the only research on the company to have come from a firm that already has strong fee-based links to it, which again gives rise to concerns about potential conflicts. The emergence of independent research boutiques that charge companies for research services have partially resolved this problem but, again, critics point to the potential for influence in research that the company itself has paid for. 

Is following analysts an investment strategy worth considering? 

There have been numerous academic studies into the quality and the predictive nature (or otherwise) of analyst research – with very mixed results. As we will discuss later, work by David Dreman and James Montier has shown that it’s important not to be too swayed by the opinions of these so-called “experts” as their forecasting track record is generally not good. Still, one of the largest UK studies was carried out in 1984 by Dimson and Marsh from the LondonBusinessSchool. They examined 4,000 stock return forecasts for 200 of the largest UK shares provided by 35 different firms of brokers and analysts. They found that analysis did indeed provide a ‘small but potentially useful degree of forecasting ability’. But they also concluded that a large part of the information content in the forecasts was quickly discounted in the market place within the first month. 

For individual investors, keeping track of what analysts are saying about stocks is virtually impossible without access to top quality data and the tools to use it. At Stockopedia, our Stock Reports include details of the analysts covering a particular company, the consensus broker recommendation and the trend in the consensus forecast over recent months. This information helps to lift the lid on how each company in the market is being perceived by the analyst community. 

In the next article in this series, we will explore whether it is possible to make money by following analyst recommendations. We will look at the evidence that these recommendations can be profitable (or otherwise), the factors that can adversely influence recommendations and the costs of such a strategy. 

In this series:
1. Understanding analyst research, who writes it and what it tells you
2. Can you make money from analyst recommendations?
3. How to think differently and use analyst research to your advantage
4. Putting it all together – three strategies to make money from analyst research

Stockopedia

Original Article: How to make money from analyst research – Part 1

By Matt Michaels

Bitcoin is a new and innovative digital currency that can be accessible online, regardless of where you are. The bitcoin system is based on crypto-currency and it is acceptable all around the globe. Bitcoin works using a peer-to-peer (p2p) technology and operates without the need of a central authority or a oversight body. Bitcoin is a valuable form of virtual currency, as there is only a maximum of 21 million units in the market at a certain time. Besides that, new bitcoins are generated at a diminishing rate.

Compared to other online transaction systems like Paypal, bitcoin uses p2p which eliminates the need for a third party to complete the transaction. Using bitcoins will help you to save in terms of transaction costs. Especially for people and online businesses that make a large amount of virtual transactions, bitcoins can help you to reduce cost. Besides that, the currency is decentralized. What this means is that the currency is free from control of central authorities. Regular bank notes and coins are suppressed and controlled by statutory bodies which oversee the printing and distribution of real currencies to the public.

So how do you use bitcoins? First of all, you will need to create a bitcoin wallet. Bitcoin is a virtual currency, so you will have to keep it in an e-wallet. E-wallets are secure and easy to access and use. To get you started, you can start by signing up for a bitcoin wallet on the Internet. There are many service providers like My Wallet from blockchain.info which provides you with free e-wallet services.

To make bitcoins even more accessible, many companies are providing users with bitcoin wallet applications for smartphones. Selling and buying of bitcoins can now be completed with a tap on your smartphone. If you are an Android user, you will be able to find many mobile apps to sell and buy bitcoins on your Google Play Store.

To improve the security of your bitcoin wallet, most people download and install desktop clients to store their bitcoin transactions into their computers. After you start your bitcoin wallet, always remember to save the file and back it up from time to time onto your desktop. Unlike banks, you are in-charge of the safety of your currency and money. The Satoshi Client is widely used by bitcoin users as it has been in the market since 2009.

You can sell and but bitcoins after you have your wallet. There are a variety of methods that can help you obtain this virtual currency. You can purchase bitcoins from various sellers, receive it from business transactions, doing simple task and work to gain free bitcoins and you can carry out bitcoin mining. Bitcoin has been growing in demand over the years and the demand is expected to grow even stronger with the depreciation of real currencies. If you want to understand more about the concept of bitcoin and how it can benefit you and your business, feel free to search the Internet for more information.

About the Author

Are you looking for more information regarding bitcoins? Visit http://blockchain.info/wallet today!

By Justice Litle

As part of a €10 million rescue deal, the European Union, the European Central Bank and the International Monetary Fund have decided to burn depositors in Cypriot banks.

Depositors with less than €100,000 face a 6.75% levy on their accounts. Depositors with accounts over that threshold face a 9.9% loss.

These institutions are run by clowns with matches. And their antics are taking place near tankers filled with kerosene.

The authorities argue that Cyprus is a “special case.” That’s because, in addition to being home to a spectacularly risky banking
system, Cyprus is a quasi-legal tax haven and black-money stash for Russian oligarchs.

So the authorities wanted to send a message to foreigners using Cyprus as an offshore haven for their hot cash.

And because someone had to pay for the Cypriot bailout (a demand of Germany, Finland and others)… and because the Cypriot government didn’t want to anger the big-money tax dodgers using it as an offshore bolt-hole… the powers that be decided to make small depositors take the hit instead of large ones.

The decision to confiscate funds from small Cypriot depositors… if it goes through… will have disastrous long-term effects for the following reasons:

1. Despite the draconian measures, the Cypriot economy is still a strong candidate for collapse.
2. The bailout shatters the unspoken rule protecting small bank depositors.
3. It strips the EU, the ECB and the IMF leaders of any remaining credibility in the eyes of small savers throughout Europe.

Details are hazy as to who green-lit the decision to punish small depositors. But it’s clear that Europe’s austerity enforcers demanded some kind of financial reckoning. And so they agreed to the Cypriot government’s panic proposal to protect the big fish by going after the little fish instead.

This is a colossal failure of common sense… and a truly dangerous precedent for other bank depositors in the euro system.

The Cypriot government’s last-ditch effort to save itself as a financial haven (somewhere between legal and illegal) was a waste of effort. The big money oligarchs who have been using Cypriot banks to stash their cash will now yank out remaining funds in fear of further confiscations.

This means that the Cyprus economy — basically a financial pyramid scheme — still faces collapse.

Meanwhile, small depositors in Europe’s other troubled periphery nations will wonder whether they will face the next “special case” confiscation next.

Put simply, millions of eurozone depositors could start pulling their cash out of the banks and stashing it under the mattress.

Here’s how the system is SUPPOSED to work…

Big fish investors have potential to see huge returns from their bond holdings. But they can also lose money if things go wrong.

Little fish depositors don’t have a shot at big returns. They earn their fixed rate of return (usually almost nothing) on their deposits. But in exchange for loaning money to the banks by way of their deposits, they are assured their
deposits will not be put at risk.

Except now the technocrats in Europe and the IMF have decided to break the unspoken rules and violate the sanctity of small depositor protection.

This is bad news for bank depositors. But it’s good news for gold. The yellow metal has been trading poorly of late. Since the start of the year, the gold price has fallen about 6% on a growing consensus the financial crisis was under control.

This is now being revealed as pure illusion… and an only temporary pause in the global financial crisis that began in 2008. The next stage of that crisis starts here. Now is a great time to buy gold, before this reality sinks home.

Carpe Divitiae,

Justice

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 20 March 2013, 08:45 EST

GOLD dropped below $1610 an ounce Wednesday, as stocks, commodities and the Euro all regained some ground lost since news of the Cyprus bailout negotiations broke over the weekend.

“We still believe that an interim low was made in February and that the precious metal should reach the January low at “1625.77 in the weeks ahead,” says Commerzbank senior technical analyst Axel Rudolph.

Gold in Euros fell back below €1250 an ounce as the Euro rallied from a four-month low against the Dollar, following news that Cypriot lawmakers have rejected plans to impose levies on bank depositors.

Silver prices meantime failed to break above $29 an ounce, drifting down towards $28.80 by lunchtime in London following what Rudolph calls a “sluggish bounce”.

Banks in Cyprus remained closed Wednesday as part of the extended bank holiday that could now last until next week, while press reports suggest Cyprus is discussing the option of capital controls.

Cyprus central bank governor Panicos Demetriades predicted yesterday that depositors could withdraw 10% or more of total deposits when banks reopen.

The Cypriot parliament yesterday rejected revised plans to impose a levy of 6.75% on bank depositors with more than €20,000 and 9.9% on those with more than €100,000. No member of parliament voted for the proposals, which form part of a €10 billion European Union-International Monetary Fund bailout out currently under discussion.

Cypriot president is expected to speak to Russian president Vladimir Putin today, after Cyprus’s finance minister flew to Moscow last night.

“The Cypriot authorities wanted to conduct [Tuesday’s] vote so that they could reaffirm the extent of their difficulties to the Europeans…[it] is not the end of the process, but instead kicks off a further round of negotiation with Moscow and Berlin,” says Alexander White, London-based European political analyst at JPMorgan Chase.

“[Germany’s] objective in this case is to remove the implied support for the Cypriot banking system, so that it can no longer function as a large offshore financial center whilst receiving a European [Central Bank] backstop… absent such a transformation, Germany appears ready to live with the consequences of Cyprus stepping out of Europe.”

“Germany wants a solution,” said German chancellor Angela Merkel this morning.

“We will continue negotiations, primarily via the troika [of the EU, ECB and IMF].”

“As recently as in January, Cypriot banks offered 4.5% for a 1-year deposit while other peripheral countries, including Italy and Spain, offered about 2.5%, and Germany 0.9%,” points out a note from UniCredit, adding that depositors putting their money in Cypriot banks would have made around €23,000 more since 2008 than those depositing in Germany.

“Why does the Cypriot parliament (and many commentators) seem to suggest that a 15% tax on such deposits…would be unreasonable now the banks are in trouble, but that German, Italian and other Eurozone taxpayers should rather foot the bill? To me, the Cypriot position is simply un-sellable in the rest of the Eurozone.”

The situation in Cyprus is “a good thing for Russia,” says Sergey Cheremin, head of Moscow’s department for economic and international relations.

“It’s totally changed the perception of Cyprus…it shows those Russians who keep their accounts in Cyprus that it’s not a heaven, it’s a hell. It will encourage a lot of Russian companies to concentrate their resources in Moscow.”

In London meantime, UK chancellor George Osborne unveiled his latest Budget Wednesday, announcing that the official growth forecast for the UK this year is 0.6%, down from its previous forecast of 1.2%.

The Pound fell against the Dollar following the news, reversing gains made earlier in the day following the publication of Bank of England minutes.

BoE governor Mervyn King, who steps down this summer, again voted for an extra £25 billion of quantitative easing at this month’s Monetary Policy Meeting, the minutes show. As in February’s meeting, King was in the minority of a 6-3 vote.

Over in the US, the Federal Reserve makes its latest policy announcement later today, with most analysts predicting no change to the Fed’s $85 billion a month QE purchases.

Gold’s premium over platinum meantime narrowed to around $50 an ounce this morning, having hit $60 yesterday, from a discount of $80 a month earlier.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By OilPrice.com

While most would think that the risks junior oil and gas companies are taking in exploring new frontiers as far away as the remote reaches of Africa are related to government instability and conflict, another risk they face is right at home and lies right beyond their network firewalls.

Cyber security breaches are becoming more common place as the ranks of junior companies swell and take on new exploration venues with a great deal of energy. But at home their firewalls are not safe and hackers are being paid to find out what juicy exploration news is being discussed in their boardrooms.

In Canada—home of some of the most tenacious of these exploration juniors—local media reported late last year that the internal firewall of Telvent Canada Ltd. had been breached by foreign hackers.

These hackers can represent anyone from a competitor to an organized crime group to political and environmental activists. And the information they want can be anything from preliminary exploration results, merger and acquisition talks and expansion plans to geological data and technological information. All of it is valuable. All of it is sellable.

According to Ernst & Young, most oil and gas companies don’t have high enough network security standards. This is demonstrated by the rising incidents of external cyber attacks. Some companies in the industry don’t even have a formal security framework in place.

Everything changes with everything else, and while exploration is getting both smaller and bigger at the same time, cyber attacks are being more targeted, taking advantage of individuals who use their own electronic devices to connect to their company’s network. This is where the biggest weaknesses emerge.

There is an accelerating trend for oil and gas companies to require their employees to use their own mobile devices for work. It’s such a trend, in fact, that it even has its own acronym: BYOD, or bring your own device. But because of the security implications this entails, analysts predict that 65% of enterprises will adopt a mobile device management solution in the next five years.

What this means is that they will need a more secure way to handle sensitive information if their employees are using their own devices, storing company information on those devices and linking up to company networks. Lines between personal and corporate data can be very blurry and this is exactly what cyber attackers are targeting.

There are other weak links, too. Smaller oil and gas exploration and production companies often require external assistance to identify opportunities in foreign countries, to network with the right people and to navigate government figures and regulations. The help they enlist creates another chink in the armor as important data is sent back and forth.

Source: http://oilprice.com/Energy/Energy-General/Oil-Explorers-Beware-Hackers-Are-Eyeing-What-You-Know.html

By. Jen Alic of Oilprice.com

By www.CentralBankNews.info     South Africa’s central bank held its benchmark repurchase rate steady at 5.0 percent, saying its policy  stance is “appropriately accommodative” given the economy’s negative output gap and events in Cyprus that could further undermine growth prospects. This is balanced against inflationary risks.
    The South African Reserve Bank (SARB), which has been in an monetary easing cycle since December 2008, said the global economy was still characterised by a multi-speed recovery, with recent events in Cyprus increasing risk and uncertainty in Europe with “the potential to reignite the banking and sovereign debt crises and undermine growth prospects further.”
    In addition, the global outlook is clouded by fiscal gridlock in the United States, the bank said.
    South Africa’s growth prospects are subdued despite a better-than-expected fourth quarter GDP with the bank raising its 2013 forecast to 2.7 percent, from a previous forecast of 2.6 percent, but cutting its 2014 forecast to 3.7 percent from 3.8 percent.
    South Africa’s Gross Domestic Product bounced back to a 2.1 percent growth in the fourth quarter from the third for annual growth of 2.5 percent, up from 2.3 percent in the third quarter.
     For the full 2012 year, South Africa’s growth eased to 2.5 percent, despite a 9.3 percent contraction in the mining sector, from 3.5 percent in 2011.

     The SARB, which cut rates by 50 basis points in 2012, estimates the economy’s potential output growth at 3.5 percent and the important mining sector bounced back with annual growth of 7.3 percent in January.
    “Nevertheless the (mining) sector is expected to remain under pressure given the unsettled labour relations environment,” the SARB said, adding that the unresolved labour disputes pose a significant risk to the exchange rate and economic growth.
    However, a lower rand exchange rate provides an opportunity for the country’s manufacturing sector to become more globally competitive but to sustain this will require improved productivity and containment of wages and other cost, which underlines the need to control inflation, the bank said.
    South Africa’s consumer price inflation rate for all urban areas rose to 5.9 percent in February from 5.4 percent in January, mainly due to higher medical insurance costs, hitting core inflation which rose markedly to 5.3 percent from 4.7 percent.
    Incorporating the new CPI weights, a rebasing and lower electricity prices, the SARB forecasts inflation to average 5.9 percent in 2013 and 5.3 percent in 2014 compared with previous forecasts of 5.8 and 5.2 percent.
    In the third quarter of this year, inflation is expected to temporarily breach the bank’s upper target range, with prices averaging 6.3 percent and then easing to 5.2 percent in the final quarter.
    “This deteriorating is largely due to the depreciation of the rand and higher petrol prices, which more than offset the impact of the lower electricity price increases and lower starting point,” the bank said.
    In 2012 inflation averaged 5.6 percent, in the upper end of the central bank’s 3-6 percent target.
    “The MPC continues to assess the balance of risks to the inflation outlook to be on the upside, mainly due to the exchange rate and wage pressures,” the SARB said, adding underlying inflation appears to be relatively contained and there is lower risk from food price inflation.
    The government’s projected deficit for the past fiscal year of 5.7 percent of GDP is wider than initially budgeted due to lower revenue from weaker growth and for the 2013/14 fiscal year it is budgeted at 5.1 percent, declining to 3.6 percent by 2015/16.
    Earlier this month the Organisation for Economic Co-operation and Development (OECD) recommended that SARB cut interest rates despite rising inflation to support the economy while taking steps to prevent the rand from becoming overvalued.
 
    www.CentralBankNews.info

By www.CentralBankNews.info     Iceland’s central bank held its benchmark seven-day lending rate steady at 6.0 percent, saying it will be necessary to raise interest rates as spare capacity disappears from the economy but the pace of this normalisation will depend on inflation.
   The Central Bank of Iceland, which raised rates by 125 basis points in 2012, said the economic recovery has lost some of its previous pace, which means the margin of spare capacity in the economy has narrowed further while it’s accommodative stance is still supporting economic growth.
    But if inflation declines slower than forecast, it will be necessary to reduce the monetary slack sooner  than otherwise required, the central bank said.

    Inflation rose to 4.8 percent in February from 4.2 percent in January and the highest rate in eight months. The central bank targets inflation of 2.5 percent.

    Iceland’s central bank said the outlook is still for a gradual economic recovery and leading indicators are consistent with that prospect.
    Inflation, however, “proved considerably higher in February than previous anticipated,” the bank said, while on the other hand the Icelandic krona has appreciated.
    The bank’s decision in February to suspend regular foreign currency purchases and support the krona through foreign exchange intervention has proven effective. 
    “The Bank’s actions have reduced the risk that self-fulfilling expectations of a depreciation will weaken the króna still further, and in this way they have supported monetary policy,” the bank said.
    Iceland’s Gross Domestic Product expanded by only 0.5 percent in the fourth quarter from the third, down from the third quarter’s expansion of 4.8 percent from the second. Annual growth in the fourth quarter was 1.4 percent  down from 2.2 percent.
 
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