World News

ECB hikes key interest rate by 25 bps

As expected, the European Central Bank (ECB) hiked its key interest rate by 25 basis points to reign in inflation, even though economic growth has slowed in line with the global trend. The ECB boosted its key lending rate to 4.25%. This was the first increase by ECB in 13 months. President Jean-Claude Trichet hinted that he was done boosting borrowing costs for now. He played down the prospects of a series of interest-rate increases, saying that the quarter-point hike will help bring inflation back below 2%. The euro headed for a weekly decline against the dollar on speculation a worsening European economic outlook will rule out future rate increases. The 15-nation currency traded near a one-week low against the dollar after Trichet said he has no bias and that economic growth is not flattering.

IEA cuts oil demand forecast on record prices

The International Energy Agency (IEA) cut its five-year forecast for global oil demand, saying that record high prices and slower economic growth will reduce demand. The Paris-based agency cut more than 3mn barrels per day from its 2012 global demand forecast. A drop in OPEC spare capacity to 1mn barrels per day by 2013 will keep the market tight, the IEA said in its Medium-Term Oil Market report. The agency, which advises 27 of the world's most industrialised nations, cut oil demand estimates for each year between 2009 and 2012 by about 3%. The IEA forecast that global oil demand will rise to 86.87mn barrels a day in 2008, down 1.4mn from the 88.27mn barrels it projected in last year's report. Global oil demand will expand by 1.5mn barrels a day, or 1.6% a year on average in the five years between 2009 and 2013, the agency said, compared with a forecast of 2.2% a year to 2012 in its previous report, issued last July.

Moody's upgrades Japan's debt rating

Japan's debt rating was increased one level to 'Aa3' by Moody's, citing government's continuous effort to restrain spending to reduce debt. This is now the fourth-highest investment grade. "The increase from A1 was prompted by expectations of continued fiscal restraint and consolidation, coupled with an easing-out of the debilitating effects of deflation," Thomas Byrne, senior vice president of Moody's said. The upgrade came eight months after Moody's raised the rating to 'A1' and puts Japan on a par with Taiwan and Cyprus. Japan still ranks the lowest among the G7 nations. Within the G7 only Italy, with 'Aa2', and Japan have ratings below the top 'Aaa' grade. Economists say Japan has not done enough to pare the debt, which the OECD estimates stands at 182% of GDP.