Thursday 6 August 2009

UPDATE: Sterling Plunges As BOE Expands Asset Purchase Scheme

UPDATE: Sterling Plunges As BOE Expands Asset Purchase Scheme

(Adds detail, comments.)

LONDON (Dow Jones)--The pound has fallen sharply after the Bank of England announced Thursday that it intends to expand its bond-buying program by GBP50 billion.

Sterling has dipped by over 0.8% to hit a low of $1.6833 against the dollar, while the euro jumped by nearly 1% against the pound to hit GBP0.8547.

Economists had been split in their predictions on what the BOE was likely to decide at its policy meeting this month. However, a run of surprisingly positive U.K. data Wednesday had encouraged some economists to expect that the BOE might suspend or trim back its bond purchases.

Now it appears that growing optimism about the U.K.'s economic outlook may have been misplaced.

"The U.K. still has a long way to go, and that's what the bank is reacting to," said Geoffrey Kendrick, a currencies analyst at UBS in London.

Kendrick said that the U.K.'s unexpectedly weak reading of gross domestic product for the second quarter should have been a reminder that the economic outlook was precarious. GDP shrank by 0.8% in the second quarter and dropped 5.6% on the year, the largest annual decline since quarterly records began in 1955.

"The market got ahead of itself back in June, with the pound supported by its correlation with global banking stocks," he said.

It remains to be seen whether the pound's shift lower Thursday will prove to be a knee-jerk reaction or the start of a sustained move lower.

At 1150 GMT, the pound was at $1.6843. The euro was at GBP0.8533.

-By Katie Martin, Dow Jones Newswires; +44 (0) 207 842 9346; katie.martin@dowjones.com

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(END) Dow Jones Newswires

August 06, 2009 07:58 ET (11:58 GMT)

2nd UPDATE:Romania Ctrl Bk Revises Dn 09 CPI Forecast-Mediafax



2nd UPDATE:Romania Ctrl Bk Revises Dn 09 CPI Forecast-Mediafax

(Adds further comment referring to 2009 GDP contraction)

BUCHAREST (Dow Jones)--Romania's central bank has revised down its forecast on the country's inflation rate for 2009 to 4.3%, from 4.4% estimated in May, Central Bank Governor Mugur Isarescu said Thursday, news agency Mediafax reported.

The central bank also revised its projection on 2010 annual inflation to 2.6%, from 2.8% seen three months ago.

Although the 2009 inflation forecast is not significantly changed, the central bank is more optimistic about next year's annual rate, Isarescu told a news conference at which he presented the quarterly inflation report.

The governor added that there are "potential" reasons for deviations from the main forecast, with the main uncertainty being the development of the international crisis.

"We try to be realistic and say there are so many factors that can alter our forecasts. The main risk factor is that we don't know with enough certainty how the global economic crisis will evolve, as we are seeing very different projections," Isarescu said.

The central bank's revised inflation forecast is based on an 8% economic contraction in 2009, similar to the figure discussed with the International Monetary Fund, central bank's deputy governor Cristian Popa said in his turn.

Also, the central bank estimates a current account deficit of 5%-6% of the gross domestic product by year-end, Popa added.

The country's annual inflation rate was 6.3% at the end of 2008.

Romanian annual inflation slowed down to 5.86% in June, on lower fuel and food prices and a stable Romanian leu exchange rate.

The central bank Tuesday cut its key monetary rate by 50 basis points to 8.5% on the year and lowered the minimum reserve requirements on foreign currency-denominated liabilities to 30%, from 35%.

For 2009, Romania's central bank targets a 3.5% inflation rate, with a one percentage point variation band around the target. The same objective was set for 2010.

Agency Web site: www.mediafax.ro

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=lwy%2FldcGHKHpqaunEKCa2g%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

August 06, 2009 08:11 ET (12:11 GMT)

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