Posts Tagged: central banks

 

EUROZONE FINAL MARCH HICPEurozone inflation in March dropped to its lowest level in more than four years, adding pressure on the bloc’s monetary guardians to embark on an asset-buying, or quantitative easing, programme to stave off low prices

The final figure on annual inflation in the euro area confirmed it at 0.5 per cent for March, compared to 0.7 per cent in February, the EU’s statistics office said on Wednesday.

The greater than expected drop will stoke fresh fears that the eurozone is drifting towards a Japanese-style bout of deflation – a trend that has become a top concern for the European Central Bank, which has a mandate to keep the inflation rate below and around 2 per cent.

 

He may no longer be the US Federal Reserve chairman, but when Ben Bernanke speaks, the world still listens, carefully. On Tuesday evening, an auditorium packed with India’s famous names listened with rapt attention when Bernanke took centre stage at Mumbai’s Jamshed Bhaba Theatre and spoke on a broad range of issues, including the takeaways from the tumultuous economic events on his watch from 2006 till early this year.

Independence of the central bank is something clearly close to his heart. Asked for his advice to the next government about its relations with the Reserve Bank of India, Bernanke said he didn’t know much about India’s political dynamics, but what was critical for any country was that its central bank’s independence be guarded. He was speaking at the second Kotak Presidium, a forum for global leaders to share ideas that shape the future.

“You have an excellent central bank governor in Raghuram Rajan, who has been my long-time colleague as an academician in the US. As the Indian economy matures, an independent and responsible central bank is really central to its success,” he said. Bernanke, who has worked with both the Republican and Democratic governments as Fed chairman, said he was lucky as both President George W Bush and Barack Obama were strong defenders of the central bank’s autonomy. >> Read More

 

Mario Draghi’s hint that the European Central Bank is readying more monetary easing suggests that eurozone policy makers’ next move will take them where no major central bank has gone before: cutting one of its key interest rates below zero.

The ECB president said on Saturday, following the spring meetings of the International Monetary Fund and World Bank, that a strengthening of the euro “requires further monetary stimulus”.

Several officials have said cutting the rate the central bank pays on deposits parked at the ECB below the current level of zero would be their preferred option to tackle the single currency’s appreciation.

Eurozone policy makers hope a decision to join the very select group of central banks that have imposed negative interest rates will make it less attractive for banks and investors to hold euros by, in effect, charging a levy on savings in the single currency.

Mr Draghi’s words came amid demands from the IMF, finance ministers and central bankers gathered in Washington that the eurozone do more to stave off a damaging bout of low inflation, which is now running at just a quarter of the central bank’s target.

A big reason why inflation is so low is the euro’s strength, which makes imports from outside the region less expensive, in turn, lowering price pressures across the bloc. >> Read More

 

It’s one of those days when investors get to be a fly on the wall at the Federal Reserve’s HQ in Washington – albeit with a three-week delay.

At 2pm on Wednesday, the US central bank releases the minutes of its March 18-19 meeting, the first that Janet Yellen led as chairwoman. Here’s a summary of what to watch for.

How considerable was the discussion of ‘considerable period’?

Ms Yellen triggered a semi-violent sell-off in the US government bond market when she chose to put a time frame of six months on ‘considerable period’ – the deliberately vague language the Fed uses to describe the gap it will leave between the end of quantitative easing and when it raises rates.

With investors confused over whether Yellen made a slip or meant it, the minutes might offer clarity on what others on the Open Market Committee think.

What’s the future of forward guidance? >> Read More

 

 Euro zone countries are experiencing a recovery but lower interest rates may be needed to nurture it, European Central Bank executive board member Benoit Coeure toldFrance’s Le Figaro newspaper on Friday.

“The markets anticipate an economic recovery,” he said in an interview published on the newspaper’s web site. “At the ECB we consider that the recovery has already arrived, but we know it to be gradual and fragile. We therefore want to accompany it with low, or possibly lower, interest rates, over a prolonged period.”

He said the ECB did not see further quantitative easing measures as necessary for the time being but added: “We will continue to follow developments very closely and will act if necessary.”

On Thursday, the ECB opened the door to possibly turning on its money-printing presses to boost the euro zone economy and keep inflation from staying too low.

It kept interest rates steady at 0.25 percent at its regular meeting, but ECB President Mario Draghi said the central bank had achieved unanimity that asset purchases, also known as quantitative easing, might be needed to tackle inflation if it proved persistently low. >> Read More

 

Spain’s five year borrowing cost has gone below that of the US, vividly underlining the ravenous appetite for eurozone periphery debt but raising questions whether the rally is getting a little overdone.

At the peak of the eurozone crisis Spain’s bond yields were above those of most African countries, but the European Central Bank’s promise to keep the currency zone intact and signs of a tentative economic recovery has buoyed sentiment and pushed borrowing costs for the periphery down again.

Spain’s five-year bond yield fell 4.5 basis points on Friday to 1.75 per cent, below the US five-year Treasury yield (1.79 per cent at pixel time) for the first time since mid-2007.

In real terms – adjusting for inflation – Spanish yields are still comfortably higher than US Treasuries. Spain’s consumer price index fell into negative territory last month, while the US inflation gauge is at 1.1 per cent. >> Read More

 

The European Central Bank has given the strongest signal yet that it is prepared to embrace quantitative easing to prevent the eurozone from sliding into deflation or even a prolonged period of low inflation.

The ECB ignored calls from Christine Lagarde, managing director of the International Monetary Fund, to immediately deploy exceptional monetary policy measures, such as bond buying, and kept interest rates at 0.25 per cent for the fifth month in a row.

But Mario Draghi, ECB president, sought to address concerns the central bank is complacent about ultra-low inflation by saying the 24-member governing council was united in its support for more radical action should the outlook disappoint.

“The governing council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation,” Mr Draghi said. >> Read More

European Fears: Deflation

02 April 2014 - 5:54 am
 

European leaders may have felt a momentary brief lapse in the wary feeling of disdain that has existed between them for years now, but that was once exacerbated by the financial crisis and the entire PIGS- story that ensued, with the debt crisis. But the moment was fleeting as they sat round tables and spoke via special diplomatic communiqués as to what they should do (or not do, as the case may be) over the arch–enemy to that myth that is called ‘democracy’, Vladimir Putin. But, all of that was fleeting, secondary, peripheral and unlasting. They have greater divisional problems over the horizon and this time it’s the fear of deflation. It won’t be a fleeting moment, but a fleeing moment for them to leave the EU.

Eurozone inflation has now fallen to an all-time low for the past 52 months (March 2014) and this is now increasing the pressure that the European Central Bank will be forced to act to keep deflation at bay. There will be a Monetary Policy Meeting that is going to take place on Thursday April 3rd.

• Consumer prices increased by 0.5% year-on-year in March as shown in figures released today by Eurostat. 
• Core inflation dropped to 0.8%.
• It had previously stood at 1%
• Analysts had expected it to be at 0.6%
• The rise was 0.7% in February.
• As a consequence, the Euro immediately fell this morning against the Dollar; although it did get back the ground that had been lost by early morning. >> Read More

 

 Germany‘s finance ministry expects borrowing costs to rise next year as the European Central Bank will hike interest rates in response to an economic recovery, Der Spiegel magazine reported on Sunday, citing an internal document.

With the euro zone debt crisis receding and the economy picking up, “an active contribution towards overcoming the low interest rate policy is to be expected” from the ECB, the magazine quoted the ministry document as saying.

The ECB has kept interest rates at a record low of 0.25 percent since November and is expected hold them at that level at its next policy meeting on Thursday.

But the focus of debate in the region has been on whether the ECB will provide more rather than less monetary stimulus – given concern over whether falling rates of euro zoneinflation could usher in an economically damaging period of deflation.

Even if inflation does begin to pick up, the bank has said it would keep rates at the current level or lower well into the recovery. >> Read More

 

Former ECB executive board member Lorenzo Bini Smaghi is in the Financial Times today writing about reasons the ECB should perform quantitative easing. He argues that QE isn’t as controversial as SMP and OMT operations and lists three reasons for QE:

  1. The ECB is missing its inflation target to the downside and is likely to continue missing it
  2. The ECB has nearly exhausted room to maneuver on traditional policy and the effects of negative rates are uncertain
  3. Few banks have the appetite for non-conventional measures used so far

He writes:

What is needed at this stage is an instrument, such as the purchase of assets from financial institutions, which affects the latters’ portfolio composition and induces them to pass on the liquidity that they receive to the rest of the economy.

His final point is that safe-haven demand is pushing up the euro “to levels not consistent with the feeble recovery and price stability.” He argues that the longer the ECB waits, the more likely disinflation is entrenched.

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Team ASR,
Baroda, India.