Top central banks yet to move for exit

Pedestrians pass an euro sculpture in front of the European Central Bank (E...

The top central banks have shown little inclination yet to choke off the extraordinary support given to economies shaken by global financial crisis but some have offered the first signs of changing tack.

The Federal Reserve, European Central Bank and Bank of England all left interest rates at record lows this week and the British central bank opted to pump yet more money into its economy.

The U.S. economy quit recession in the third quarter and figures due next week are expected to show the euro zone has followed suit but Britain continues to languish.

More upbeat forward-looking data has left investors vexed as to when central banks will begin to remove stimulus -- those in Australia and Norway have already raised rates.

ECB President Jean-Claude Trichet said on Thursday he expected the euro zone economy to recover at a gradual pace in 2010, after the central bank left rates at 1.0 percent, and signalled some of the bank's liquidity measures could soon be halted.

The Bank of England decided to pump another 25 billion pounds ($41 billion) into its economy on Thursday, taking its quantitative easing (QE) to 200 billion pounds in total, but slowed the pace of the programme.

The BoE also left interest rates at a record low of 0.5 percent and said the prospect was for "a slow recovery in the level of economic activity".

The Fed on Wednesday expressed growing confidence that an economic recovery was building but stuck to its commitment to keep borrowing costs near zero for "an extended period".

The Fed said the U.S. economy had continued to pick up but expressed concern the recovery was likely to be muted.

"We've got a number of Fed meetings to go before we will get any kind of increase," said Robert MacIntosh, chief economist at Eaton Vance Corp in Boston.

WINDS OF CHANGE

There were glimpses of preparations to start winding back some of the super-cheap liquidity on offer.

Trichet signalled that an ECB scheme to give banks ultra-cheap 12-month money -- to foster bank lending to companies and consumers -- would not be extended into next year.

He also promised to announce a decision in December on the rest of the central bank's policy of flooding markets with cheap and abundant funds, saying extraordinary liquidity measures would be "phased out in a timely and gradual fashion".

"With these tenders effectively being taken as a pledge to keep rates on hold over the ensuing 12 months, their ending in December would endorse expectations of a rate hike during the course of 2010," said Richard McGuire at RBC Capital Markets.

Analysts said the Bank of England's decision to expand its asset-buying programme by 25 billion pounds, not 50 billion, and the fact that it slowed the speed at which it operates the scheme, suggested there would be no more money to come.

"We think that this is the last instalment of the QE ... reflecting our view that a significant economic recovery will take shape," said Nick Kounis at Fortis Bank.

Some also seized on the Fed's decision only to buy about $175 billion of debt issued by federal housing agencies. It had planned to buy up to $200 billion to keep mortgage costs low.

Some analysts took that as a first step away from the policy of flooding the financial system with money but the Fed said it curtailed purchases because the supply of the debt was scarce.

ASIANS TO MOVE EARLIER?

With some economies in Asia further along the recovery track, action may come there first. But the biggest central banks in the region have shown no inclination so far.

Bank of Japan Governor Masaaki Shirakawa told a forum on Wednesday that stronger growth than expected in emerging nations meant risks to Japan's economy had become more evenly balanced but with deflation likely to persist and economic activity still low, the BOJ would keep monetary conditions loose.

Even China, where the economy grew at a rapid 8.9 percent year-on-year in the last quarter, shows little sign of tightening policy yet.

Guo Qingping, an assistant governor of the People's Bank of China, told a financial forum on Thursday that the central bank would stick to its "appropriately relaxed" monetary policy stance.

(Editing by Ruth Pitchford)

(For more news on Reuters Money visit http://www.reutersmoney.in)

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