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                      DECPG Daily
        Economics and Financial Market Commentary
                    January 29, 2013
           Allen Dennis (84812), Eung Ju Kim (85804), Sanket Mohapatra (37721),
                            Ekaterine T. Vashakmadze (36773)
  You’ll find recent issues of this Daily and lots of other current analysis and h igh-frequency data at our
                                    website: http://www.worldbank.org/gem

Financial Markets…The U.S. dollar fell for a second day versus the yen, weakening
0.4% to 90.50 yen in Tuesday morning trade, before a report on U.S. consumer
confidence for January and as investors watched a Federal Reserve two-day meeting
that may signal a change to its third round of asset-buying program. The greenback also
weakened against most of its 16 major counterparts.
The Italian government sold €8.5 billion ($11.4 billion) of 181-day Treasury bills on
Tuesday as borrowing costs fell to the lowest in nearly three years. The new bills were
priced at 0.731%, the lowest rates since March 2010 and down from 0.949% at the
auction of similar-maturity debt in December. Investor demand was strong despite rising
political concerns before February national election.
Developing-country equities rose for the first time in five days, with the MSCI Emerging
Market Index climbing 0.6% from a four-week low level, as technology stocks rallied.
South Korea’s Kospi index gained 0.8%, while China’s Shanghai stock index rose 0.5%,
extending its gains since Dec. 3 to 20%, a threshold indicating a bull market.
Meanwhile, India’s Sensitive Index fell 0.4% even after the central bank cut interest
rates.
High-income Economies…The S&P/Case-Shiller 20-city index of home prices in the
US edged down 0.1% (m/m) in November mainly due to the seasonally weak time of the
year. On a seasonally adjusted basis, however, home prices rose 0.5% (m/m) in
November and were 5.5% higher than a year earlier, suggesting that the US housing
market continues to be on the mend.
German consumer confidence improved slightly, with the forward-looking GfK consumer
sentiment index forecast to edge up to 5.8 in February from 5.7 in January, mainly due
to a stable labor market, moderate inflation and higher income expectations. A sub-
index of economic expectations rose to -11.3 in January from -17.9 in December.
French consumer confidence remained stable in January, with the Insee’s consumer
sentiment index remaining at 86, the same level as December. While fewer households
anticipate a rise in unemployment than in December, the sub-index for expectations
about the general economy one-year ahead fell to -55 in January from -53 in December.
Spanish retail sales declined at a faster pace in December, falling by 10.7% (y/y)
compared with a 7.8% (y/y) fall in November, as an earlier hike in sales tax deterred
consumers already suffering from a recession and high unemployment. Retail sales for
the whole of 2012 were down 6.8% compared with 2011.

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Poland’s GDP growth slowed to 2.0% (y/y) in 2012, its slowest pace in three years, from
4.3% in 2011, with the Euro Area economic downturn and subdued domestic demand
contributing to the weaker outturn.
Hungary’s central bank cut its key policy interest rate by 25 basis points to 5.5%, its
sixth consecutive quarter percentage point reduction in the last six months, to support a
slowing economy amid moderating inflation.
Developing Economies…India's central bank cut its key policy repurchase rate by 25
basis points to 7.75% and reduced the cash reserve ratio (CRR) for banks to 4.0%
citing tight liquidity conditions. The cut in the CRR should inject around 180 billion
rupees into the banking system. India's main measure of inflation, the wholesale price
index inflation, edged down to 7.18% in December from 7.24% in November due a
moderation of prices of non-food manufactured products. Food inflation, however, has
been moving into the double digits, reflecting cyclical and structural factors, and remains
well above the central bank's 4-5% comfort zone.
Colombia's central bank cut its benchmark intervention rate by a further 25 basis points
to 4.0% in its fifth policy rate cut since July 2012 for a total reduction of 125 basis points.
Colombia's inflation rate fell to 2.4% (y/y) in December from 2.8% in November –
remaining below the 3% long-term inflation target.

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