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BOV Market Watch - Week ending 28th October 2022
28 Oct 2022

European Central Bank raises interest rates again. Despite growing economic problems, the European Central Bank (ECB) announced another large interest-rate hike on Thursday, as policymakers try to bring the region’s record-high inflation under control. Officials in Frankfurt delivered a second straight three-quarter-point hike – meeting economists’ expectations. Citing “substantial progress in withdrawing monetary policy accommodation,” they raised the deposit rate to 1.5 percent which until July was in negative territory. The ECB is fighting a battle on two fronts - record-high inflation and a slowing economy - with expectations of a recession before year end. The central bank is seeking a fine balance, as, by raising rates aggressively in an effort to deal with inflation, it could derail the wider economy.

Eurozone business activity index adds to evidence of looming recession. Survey results published on Monday show that the eurozone is slowly entering into a recession with business activity slipping at the fastest rate in almost two years, as the cost-of-living crisis dampens consumer demand. The S&P Global composite output index fell to nearly a two year low of 47.1 in October from 48.1 in September. The reading also missed economists' forecast of 47.5. This is the fourth consecutive month that the reading came in below 50, suggesting that the economic contraction will persist. “The eurozone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

US home price growth cools at a record pace in August. US home prices continued to rise in August but at a noticeably slower rate of growth as rising mortgage rates reduced appetite of prospective buyers. The S&P CoreLogic Case-Shiller Index showed that housing prices across the US increased by 13 percent from a year ago, but that increase was considerably lower than the gain of 15.6 percent seen in July. The 2.6 percentage point decline was the largest month-on-month deceleration in the annual rate since the data series began in 1987. “These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since,” wrote Craig Lazzara, managing director at S&P DJI, in a release.

Australia inflation sped to a 32-year high, sounds rates alarm. Australian inflation reached a 32-year high in the third quarter as the cost of home building and gas rose sharply, fuelling speculation for a return to more aggressive interest rate hikes by the country's central bank. The headline annual consumer price index of 7.3 percent and underlying inflation – which excludes temporary volatile items such as food and energy – of 6.1 percent are at the highest level since the Reserve Bank of Australia (RBA) was battling high inflation and a recession in the early 1990s. The RBA became the first central bank of a rich nation to curtail the size of its rate rises when it lifted its cash rate by 25 basis points this month, breaking a streak of increases double that amount. The September inflation numbers will likely stoke expectations that the bank may lift the key rate higher for longer.

In case of any queries, please email us on [email protected] or call 2275 3857.

 

 

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).