NEWS | Wednesday, 04 March 2009

PRINT THIS ARTICLE

Matthew Vella
The €95 million bond issue by the government has coincided with an impending interest rate cut tomorrow by the European Central Bank.
Observers say the issue of €70 million in government stocks, together with an over-allotment option of €25 million, coincides with yet another cut in interest rates which the governors of Europe’s central banks might be contemplating.
“The government offer has a good coupon as things stand now since the recent cuts in interest rates, but the offer is all the more attractive if Thursday marks yet another interest rate cut,” one financial services executive commented.
Economists have hedged their bets on seeing the European Central Bank making more cuts to the interest rate to boost the contracting eurozone economy.
In Europe, the focus of attention is on the meetings of the ECB, which president Jean-Claude Trichet has tagged as an “important meeting” and expectations are mounting for an interest rate cut of 50 basis points from its present all-time low, to 1.5%.
Such a decision would be made easier by a widely-expected downward revision to ECB staff forecasts for inflation and growth on 5 March.
In January, Trichet said Thursday’s meeting was not crucial for monetary policy and that “the next important rendezvous would be in March.”
Inflation has fallen to 1.1% as the global economic slump contributed to a collapse in oil prices, taking it well below the ECB’s target of just below 2%.
Inflation could hit rock bottom this year and some analysts expect a quick dip into deflationary territory, but most agree the central bank will not follow US and Japanese counterparts by assuming a so-called zero interest rate policy, or ZIRP.
Additionally, a repatriation scheme of monies deposited abroad in 2007 also releases the funds kept by government in the coming weeks.
The Special Registration Scheme was launched by the Ministry of Finance in April 2007 to entice Maltese depositors to repatriate monies held in foreign accounts.
The scheme provided individuals residing in Malta with an opportunity to regularise their position in respect of holdings and income not declared for taxation purposes.
Their monies were held for two years in government accounts to accrue interest before being released back to holders.
“Although quite early in the year for government to be issuing stocks to the public, the issue coincides perfectly with the interest rate cut and the release of the registration assets to be re-invested in these stocks,” an executive who spoke to this newspaper said.
The government stocks come with a 3.6% coupon for maturity in 2013 and a 5% coupon for maturity in 2021.

PRINT THIS ARTICLE

Any comments?
If you wish your comments to be published in our Letters pages please click button below.
Please write a contact number and a postal address where you may be contacted.