* Sweden, Turkey, Hungary cut rates on same day
* India says may follow suit soon
* Japan to ease policy later this week
* C.banks not confident about economy in 2013
By Patrick Lannin and Seda Sezer
STOCKHOLM/ISTANBUL, Dec 18 Central banks are
ending the year by loosening monetary policy further to try and
foster a durable recovery in 2013, denoting a measure of alarm
about the health of the world economy.
Sweden, Turkey and Hungary all cut interest rates on
Tuesday, united by the theme of the damage inflicted on their
economies by euro zone economic weakness.
The success of U.S. budget talks and the twists and turns of
the euro zone debt crisis will go a long way to dictating the
pace of recovery, while China is likely to stick with its 2012
growth target of 7.5 percent when it charts a course for 2013.
But even if all that plays out without setbacks,
policymakers in much of the world expect only a slow grind back
with many pitfalls on that path.
Sweden's central bank cut its main interest rate by a
quarter point to 1.0 percent -- its lowest level for more than
two years -- and said it would expected to hold it around that
level for the next year.
"The weak developments in the euro area are having a clear
effect on the Swedish economy," the Riksbank said in a
Turkey cut its main policy rate for the first time in more
than a year as falling inflation gave it room to step up its
fight against a sharper-than-expected slowdown, after it was the
fastest-growing economy in Europe last year.
Hungary's central bank dropped interest rates to a two-year
low of 5.75 percent, delivering its fifth quarter-point cut in
as many months.
Budapest will start 2013 without a financial backstop after
credit talks with the International Monetary Fund and the
European Union stalled. Politics are a factor in monetary policy
too since the four rate-setters appointed by the ruling party's
majority in parliament have consistently outvoted Governor
Andras Simor and his two deputies in the past few months.
POLITICS AT PLAY
The biggest fish in the central banking pond are on the same
Last week, the Federal Reserve launched a new round of
monetary stimulus and tweaked its own rule book by indicating
interest rates would remain near zero until U.S. unemployment
falls to at least 6.5 percent, a jobless level not seen since
The European Central Bank left rates at a record low 0.75
percent but by forecasting the euro zone economy could well
contract next year as well as this, left the door firmly open
for a reduction in borrowing costs early next year.
"We expect domestic weakness to extend into next year with a
very gradual recovery in the second half of the year," ECB
President Mario Draghi told European parliamentarians on Monday.
In parts of the world, political pressure on central bankers
is a developing theme.
Following a landslide election win for a Liberal Democratic
Party demanding stronger measures to beat deflation, the Bank of
Japan is expected to ease monetary policy again on Thursday.
After Sunday elections, incoming prime minister Shinzo Abe
called on the BOJ to boost its monetary stimulus and pressed it
to adopt a 2 percent inflation target, double its current price
goal, as soon as next month.
"I think the BOJ will deliver with increased purchases of
government debt. Next year could also be a big year for monetary
policy easing, because of the inflation target debate and a
change in leadership at the BOJ," said Norio Miyagawa, senior
economist at Mizuho Securities Research & Consulting in Tokyo.
India's central bank kept interest rates on hold on Tuesday,
ignoring government pressure to reduce borrowing costs, but said
it was shifting its focus towards boosting a flagging economy,
raising the odds of a rate cut as early as January.
As with this year, much will rest on the performance of the
world's powerhouse economy; China.
The central bank's head of research said on Monday that
China faced no big risk of an inflation rebound, nor any major
pressure to ease monetary policy aggressively next year.
Australia's economy is heavily reliant on Chinese demand for
its raw materials. Its central bank said on Tuesday that it
decided to cut interest rates this month rather than wait
because it saw further evidence that the peak in the mining
investment boom was near.