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Bank of England leaves interest rates unchanged


Financial Markets

Global equites headed for two-month lows on Friday as falling oil prices, a slid in China’s currency to
multi-years low, and sell-off in emerging markets created a sour mood ahead of a widely expected
interest rate hike by the U.S. central bank next week. The MSCI world stock index fell for a fifth day as
emerging-market stocks set for the biggest weekly drop since September and European shares hit a two-
month low. U.S. equities opened lower as well with the S&P 500 index tumbling 1.1 percent in morning
session. In contrast, U.S. Treasuries advanced with the 10-year note yield sliding 6 basis points to 2.17
percent.

South Africa’s assets tumbled for a second day, with the local currency sliding to a record low and stocks
dropping to the lowest level since August, as fallout from President Jacob Zumas’ decision to dismiss his
finance minister continued to roil markets. The rand fell as much as 2.6 percent against the dollar today,
spiraling towards the psychologically crucial 16.00 level. Government debt also slumped as the likelihood
of a rating downgrade to junk status spooked investors. The yield on the benchmark government bonds
due 2026 has soared nearly 200 basis points since December 9 to levels last seen during the 2009
recession.


High Income Economies

Contrasting with a generally narrowing trend, the U.S. budget deficit widened to $65 billion in November.
Over the 12 months to November, the deficit now stands at $461 billion (about 2.6 percent of GDP),
compared with $436 billion (2.5 percent of GDP) the same period a year earlier. With funding for the
Federal government set to expire on December 11, Congress is preparing stopgap measures.

U.K. policy interest rates were left unchanged at 0.5 percent, a record low that has been in place since
March 2009. The Bank of England’s Monetary Policy Committee noted its objective of returning inflation
to the 2 percent target gradually, without overshooting.

The South Korean Monetary Policy Committee left rates unchanged at 1.5 percent, a record low set 6
months ago. In a context of weak external demand and low inflation at about 1 percent, the authorities
anticipate a continuing economic recovery led by domestic demand.


Developing Economies

East Asia and Pacific

Foreign direct investment in China increased by 7.9 percent (y/y) to CNY 704 billion ($114 billion) in the
first eleven months of the year. The services sector received CNY 70 billion of foreign investment, an
18.8 percent increase. Main sources of investment were ASEAN countries, European Union, Hong Kong
SAR, China and Macao SAR, China; while investment from Japan, the United States and Taiwan, China
fell.

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Latin America and the Caribbean

The central bank of Peru hiked its benchmark interest rate by 25 bps to 3.75 percent as widely expected.
It is the second rate hike this year due to higher inflation expectations.

South Asia

Recording the fastest monthly increase in 5 years, India's industrial production rose 9.8 percent (y/y),
significantly higher than September’s upwardly revised 3.8 percent increase and economists’ forecast of
7.6 percent climb. Manufacturing output increased 10.6 percent and electricity generation grew 9
percent. Mining and quarrying production climbed 4.7 percent.

December 11, 2015



The Global Daily is an informal briefing on global economic and financial developments compiled by the
World Bank’s Development Economics Prospects Group. Recent issues, together with analysis of a
variety of macroeconomic topics, covered by the Group, may be found at:
 http://www.worldbank.org/prospects.

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