Posts Tagged: central banks

Eurozone CPI Jan mm final -1.6% as exp

24 February 2015 - 15:39 pm
 

The eurozone’s inflation rate has been confirmed at minus 0.6 per cent in January, matching the low touched in the wake of the financial crisis underscoring the case for the European Central Bank’s quantitative easing programme.

The ECB last month finally unveiled a €60bn a month QE programme, which will be launched in March, to reinvigorate economic growth and stave off the danger of falling prices turning into a full-blown, Japanese-style deflationary spiral.

Inflation has been falling primarily because of slumping oil prices – the “core” rate that strips out energy is still positive, at 0.6 per cent in January – but most ECB policymakers have decided that the danger that a deflationary mindset sets in was too great to sit on their hands.

Prices fell 1.6 per cent in January, in line with expectations and compared to a 0.1 per cent month-on-month drop in December.

 

The European Central Bank revealed Thursday that there were divisions on its policy-setting governing council over the use of its new anti-deflation tool, but a “large majority” had voted for it as previous measures were insufficient.

Publishing the minutes of its governing council’s regular monetary policy deliberations for the first time, the ECB said most members had voted in favour of a new bond purchase programme at its meeting on January 22.

But “some members” had rejected it, saying such a tool should only be used as a “last resort.”

At last month’s meeting — the ECB’s first of the year — president Mario Draghi had unveiled plans to embark on a policy of “quantitative easing” or QE to boost the worryingly low level of inflation in the 19 countries that share the euro.

“While the existing monetary policy measures adopted in June and September 2014 were showing encouraging results with regard to a further improvement in overall financing conditions, it had become increasingly evident that they would fall short in quantitative terms,” the minutes said.

There was “a broadly shared view that the conditions were fully in place for taking additional monetary policy action,” the ECB said. >> Read More

 

Wednesday’s meeting of the European Central Bank’s board is not expected to bring any nasty surprises for Greece in regard to the expected renewal of liquidity to Greek lenders via the Emergency Liquidity Assistance (ELA) mechanism of the Bank of Greece.

Bank officials estimate that Frankfurt will continue to approve the flow of credit to local banks, though they make no secret of their concern over whether the clash between Athens and its eurozone partners could test the balances within ECB.

Domestic lenders expect the ECB not only to renew ELA approval but also to raise its limit from the current 65 billion euros. Last week, the ECB raised the ceiling by 5.5 billion euros to allow banks to deal with their pressing cash needs: Deposit outflows since early November have exceeded 20 billion euros and in recent days Greek bank accounts are bleeding at a rate of 300-500 million euros per day.

Tuesday’s announcement by Prime Minister Alexis Tsipras of plans to present Parliament with new reforms may stoke tensions with the country’s creditors and has caused concern in the credit sector, but bank officials have noted that the ECB would be the last to take any action that would jeopardize the cohesion of the eurozone.

 

No change in policy from the Bank of Japan

  • Revises up assessment for exports
  • Revises up assessment of factory output
  • Consumer inflation likely to slow for time being reflecting oil price falls
  • Core consumer inflation, when excluding effect of last year’s sales tax hike, moving around 0.5 pct
  • Private consumption has remained resilient but recovery in some areas has been sluggish
  • Japan’s economy likely to continue recovering moderately as a trend
  • Keeps monetary policy steady, pledges to increase monetary base at annual pace of 80 trln yen
  • Policy decision was made by 8-1 vote
  • BOJ board member Kiuchi votes against keeping policy steady, says policy before October 31 easing was appropriate
  • Kiuchi proposed making 2 pct inflation target a medium- to long-term goal, which was turned down by 8-1 vote
 

Few people understand the global economy and its (mis)management better than David Stockman — former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier.

David is now loudly warning that events have entered the crack-up phase, which he predicts will be defined by the following 4 developments:

  • Increasingly desperate moves by the world’s central banks
  • Increased market volatility and losses
  • Deflation in industrial and commodity prices
  • Decreasing demand due to Peak Debt

As the crack-up phase gains momentum, he predicts an increasing number of “financial breaks” that will add to the unpredictability and instability of the environment for investors. Even ‘dancing close to the door’ sounds excessively risky at this point.

>> Read More

 

Sweden’s central bank is bringing in a negative interest rate in an attempt to tackle falling prices, and has announced it will purchase government bonds in response to the European Central Bank’s quantitative easing programme.

The Riksbank has announced a cut in in its key rate – which was at zero – to -0.1 per cent.

The central bank has also said it will start an asset purchasing scheme, by buying nominal government bonds for a sum of SK10bn. The move follows the European Central Bank’s announcement last month of a €60bn a month quantitative easing programme.

The Swedish krone fell to a 2 month low against the euro immediately following the decision.

Explaining its move, the Riksbank said underlying inflation has “bottomed out” but “the situation abroad is now more uncertain and this increases the risk that inflation will not rise sufficiently fast”.
>> Read More

 

Just what the market had hoped would not happen…

  • *ECB SAYS IT LIFTS WAIVER ON GREEK GOVERNMENT DEBT AS COLLATERAL
  • *ECB SAYS IT CAN’T ASSUME SUCCESSFUL CONCLUSION OF GREECE REVIEW

What this means simply is that since Greek banks are now unable to pledge Greek bonds as collateral and fund themselves, and liquidity is about to evaporate, the ECB has effectively just given a green light for Greek bank runs, as suddenly it has removed, both mathematically but worse politically, a key support pillar from underneath the already bailed out Greek banking system, as well as some of the worst parts of the bible (or merely a negotiating move to let Greece see just what kind of chaos this will create).

And now finally, after many years of investing in ECB repo collateral, pardon Greek debt, Greek banks finally will ask what the “fundamental” value of all that Greek government debt they bought really is. Judging by the Greek ETF’s reaction, the answer is lower.

>> Read More

 

The Federal Reserve’s first policy meeting of 2015 avoided any u-turns, leaving in place existing signals that the recovery is on track and that it will be “patient” before raising interest rates amid low inflation. The statement sets the stage for intense discussions in the weeks ahead as the central bank decides whether to raise interest rates in June or hold fire amid tumbling inflation.

1. What did the Fed signal on rates?

The Fed said in December it would be “patient” on rates, meaning that it was unlikely to act for at least the subsequent two meetings of its Federal Open Market Committee. It reiterated that guidance on Wednesday. That suggests increases will be off the table at its meetings in March and April, making June the earliest likely date for a rise. The Fed’s next meeting on March 17 and 18 will be critical as it considers possible changes to its “patience” language.

2. What was the economic assessment?

The Fed reflected America’s strengthening economic performance in a series of amendments to its previous language. Activity is now expanding at a “solid” pace, a step up from the “moderate” expansion it saw in December. Job gains were described as “strong” rather than “solid”. And the Fed said energy prices had “boosted household purchasing power” — which could augur well for consumer spending. It made no mention of December’s surprisingly weak wage numbers.

3. How about inflation? >> Read More

 

At least, that is what we all fervently hope. A larger programme than expected of quantitative easing gets under way shortly.

 It will amount to around €1.14 trillion or €60bn a month between March 2015 and September 2016. The Germans have by and large reacted negatively to this long-delayed announcement.

The newspaper Frankfurter Allgemeine, Germany’s equivalent of the Financial Times, went as far as to accuse the ECB of “burying the principles of currency union”, warning that the QE boost was equivalent to the total annual turnover of Germany’s well-entrenched, family-run companies.

Sabine Lautenschlager, the German representative on the ECB board, expressed concern that the decision would encourage member states to run up more debts. However, it was also reported that the head of the Berlin based DIW Institute, economist Marcel Fratzscher, approved the programme of bond purchases on the basis that it would make the euro more stable, protect Germany’s foreign investments, and give a boost to exports. >> Read More

 

Once upon a time, everyone was shocked when one after another central bank adopted what previously was unthinkable: a Zero Interest Rate Policy, or ZIRP. Then, on June 5, the ECB added “awe” to the equation when it became the first major central bank to push rates negative. The move was meant to shock depositors into pulling their money out of banks and into risk assets. It failed, which is why 2 days ago the ECB took awe to the next level when it added QE to NIRP. It did however succeed in one thing: pushing $1.4 trillion in Euro area government debt into negative interest rate territory and right into an abyss that screams deflation.

As JPM nots, the chart below shows an estimate of the amount of Euro area government bonds with longer than 1-year maturity trading at negative yields over time. Around €1.4tr of Euro area government bonds are currently trading with negative nominal yields, almost all of them of core euro governments of up to 5 years maturity. Back in June, before the ECB’s shift to negative depo rate, the amount of euro area government bonds with longer than 1- year maturity trading negative was virtually zero.

>> Read More

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Team ASR,
Baroda, India.