Posts Tagged: central banks

ECB starts buying eurozone covered bonds

20 October 2014 - 16:08 pm

The European Central Bank has started to buy covered bonds, launching its latest attempt to stave off a vicious bout of economic stagnation in the currency area.

A spokesperson for the ECB confirmed that the central bank had begun purchasing the assets on Monday, 

The purchases are the first in a bond-buying programme which is expected to see the ECB place billions of euros of covered bonds and asset-backed securities on its balance sheet over the next two years in an attempt to revive lending and growth across the region. >> Read More


Germany’s Jens Weidmann has claimed that the European Central Bank’s (ECB) plan to purchase asset-backed securities (ABS), a form of quantitative easing, will do little to help the ailing eurozone economy.

He insisted that the eurozone’s economic stagnation was due to structural factors rather than monetary policy.

“The biggest bottleneck for growth in the euro area is not monetary policy, nor is it the lack of fiscal stimulus: it is the structural barriers that impede competition, innovation and productivity,” he said.

>> Read More

What Options Are Left For Central Banks?

16 October 2014 - 10:30 am

Never before have quasi-omnipotent financial gods had so few powers. A lot is being written about central bank policies now as the Federal Reserve ends its primary quantitative easing (QE) program and the limitations of central bank easing become increasingly apparent in Europe and Japan.

Let’s start by listing the tools central banks have on hand. Strip away the fancy footwork and econospeak mumbo-jumbo, and what’s left is:

1. Offer cheap credit to the banking sector, the idea being that the banks will use the free money to make loans to households and businesses. These new loans would inject the central banks’ new money into the real economy.

2. Buy bonds to push interest rates down and buy mortgages to support the housing market.

3. Provide unlimited liquidity so banks and key financial institutions facing a liquidity crunch have a lender of last resort.

The basic idea here is that central banks provide a buffer against financial crises. When short-term loans come due and the borrower has run out of cash, rather than slip into insolvency they can borrow short-term money from the central bank. >> Read More


Eurogroup President Jeroen Dijsselbloem on Thursday sharply dismissed critics of the European Central Bank’s efforts to fight a stall in the eurozone economy.

Asked at the IMF-World Bank meetings in Washington why “everyone” says the ECB’s stimulus efforts are too small, Dijsselbloem bristled, noting that its programs are only just beginning.

“Not everyone is saying it won’t be enough,” he retorted, adding “all these people who are absolutely sure it won’t be enough don’t know what they are talking about.”

“Because how can we know the effect when these operations are yet to take place?”

The ECB in June decided to start its TLTRO program — or targeted longer-term refinancing operation, which injects liquidity into the economy through banks — which so far has grown slowly. >> Read More


Germany’s exports are falling at the fastest rate since the global crisis in 2009, raising fears of a triple-dip recession and a disastrous relapse for the rest of the eurozone.

The country’s five economic institutes – or “Wise Men” – slashed their growth forecast for Germany from 2pc to 1.2pc next year, warning that the latest measures unveiled by the European Central Bank will add “hardly any” extra stimulus to the real economy and may be unworkable.

Christine Lagarde, the head of the International Monetary Fund, warned that the eurozone is at “serious risk” of falling back into recession if nothing is done, and is in danger of suffering a lost decade. “If the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable,” she said. The wording is a clear call to Germany for an immediate shift in policy.

German exports slumped by 5.8pc in August as the crisis in Ukraine and Russia took its toll. “We’re no longer in a recovery,” said Volker Treier, head of the German Chamber of Industry and Commerce (DIHK). He said geopolitical upsets may have pushed the economy over the edge into a “technical recession”, but added that Germany itself is also to blame for failure to break out of a slow-growth trap. “We have too little investment. That’s been the case for years,” he said.

>> Read More


The European Central Bank has left interest rates on hold as it prepares to unveil details of its plan to buy hundreds of billions of euros’ worth of private sector assets to stave off economic stagnation in the currency area.

The central bank’s governing council kept its benchmark main refinancing rate at 0.05 per cent

The deposit rate charged on a portion of banks’ reserves parked at the ECB stayed at 0.2 per cent.

The rate hold comes as Mario Draghi, ECB president, prepares to unveil details of the central bank’s plan to buy bundles of loans repackaged as asset-backed securities, alongside covered bonds, to spur lending in the region. >> Read More


The strengthening dollar and the sudden departure of Bill Gross from Pimco caught the market’s attention this week.

Next week, focus shifts back to the economy and monetary policy. Here’s a look at what the calendar holds.

Jobs report

All eyes are on the monthly non-farm payrolls report due next Friday. The US economy is expected to have added 210,000 jobs in September, while the unemployment rate is projected to remain unchanged at 6.1 per cent.

Other key economic reports set for release next week include personal income and spending, consumer confidence and the ISM manufacturing survey.


The European Central Bank’s latest monetary policy decision on Thursday will be closely scrutinised by markets, as will a press conference from president Mario Draghi immediately after. >> Read More


The U.S. can live with a stronger dollar but wants Japan and the European Union to do more to rev up their economies.

     That was one takeaway from the weekend gathering here of finance ministers and central bank chiefs from the Group of 20 nations.

     “There was hardly any talk about currency policy,” said a Japanese government source.

     The joint communique issued at the close of the two-day meeting only affirmed existing “exchange rate commitments.” In April of last year, by contrast, the group had explicitly pledged to “refrain from competitive devaluation” amid criticism from some members, including South Korea, that the Bank of Japan’s monetary easing was driving down the yen.

     With the Federal Reserve winding down quantitative easing, the dollar’s recent stand-alone rise amid major currencies is a homegrown phenomenon. There was little mention of that here. >> Read More


The European Central Bank will have to extend its bond-buying programme to include eurozone government bonds – most likely by the start of next year -Barclays analysts argue.

Speculation that the ECB will follow other major central banks in starting a full “quantitative easing” programme has been stewing for some time, but was brought to a boil by the disappointing demand for its latest round of cheap bank loans this week.

ECB president Mario Draghi has said he wants to boost the central bank’s balance sheet by €1tn up to its 2012 size, but to do so he will have to buy government bonds, Barclays argued in a report today. The reasons are as follows.

First, increasing the ECB’s balance sheet by up to €1tn to its 2012 size is unlikely to be achieved via TLTROs, ABS and covered bond purchases alone…

Second, we believe that the risk of too long a period of low inflation is higher than the ECB’s inflation projections imply, while the growth outlook has significantly deteriorated and remains subject mainly to downside risks, especially for France and Italy.

However, the bank’s analysts admit that their prediction for QE in the first quarter of 2015 is a “close call”, especially given intense German opposition.

The charts below illustrate Barclays’ reasoning. The first one shows how eurozone inflation is expected to remain well below the ECB’s target for an extended time. The second shows how the size of its balance sheet relative to the common currency area’s economy has dropped significantly since the crisis.

The third illustrates how it is hard to lift the ECB’s balance sheet by €1tn without buying government bonds, given the paucity of alternatives.

>> Read More

6 Major Sources Of Global Uncertainty

19 September 2014 - 10:15 am

This has been an unusual year for the global economy, characterized by a series of unanticipated economic, geopolitical, and market shifts – and the final quarter is likely to be no different. How these shifts ultimately play out will have a major impact on the effectiveness of government policies – and much more. So why have financial markets been behaving as if they were in a world of their own?

Apparently unfazed by disappointing growth in both advanced and emerging economies, or by surging geopolitical tensions in Eastern Europe and the Middle East, equity markets have set record after record this year. This impressive rally has ignored a host of historical relationships, including the long-established correlation between the performance of stocks and government bonds. In fact, correlations among a number of different financial-asset classes have behaved in an atypical and, at times, unstable manner.

Meanwhile, on the policy front, advanced-country monetary-policy cohesion is giving way to a multi-track system, with the European Central Bank stepping harder on the stimulus accelerator, while the US Federal Reserve eases off. These factors are sending the global economy into the final quarter of the year encumbered by profound uncertainty in several areas. >> Read More

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Technically Yours,
Team ASR,
Baroda, India.