Ignacio de la Torre | The ECB’s deposit rate, which is now at -0.4%, will move to -0.2% during 2019 and later to 0%. At the same time, during the second half of 2019 the logical thing is for the ECB to begin to raise interest rates. These two factors should fuel a progressive rise in the Euribor from the summer of next year.
Pablo García Gómez (Carax Alphavalue) |Sector earnings from Europe for the second half of 2017 have been overall solid, with some positive surprises from “heavy cyclicals” like oil and metals and mining.
BoAML | The ECB has closed many doors in December. The 2015-16 strategy of monetary policy covering for fiscal loosening to facilitate structural reform has changed.We are back to national governments having to navigate through strained fiscal trajectories, leaving very little room for mistakes. Potential growth prospects are not great, not only in the periphery.
Francesco Saraceno | Is the last BoJ move a serious risk to blow credibility. If it failed to lift the inflation to the 2% target, how can it be credibly believed to overshoot it? Credibility was associated in the past three decades to changing incentives over time, and invoked to recommend rules over discretion. Today, eight years into the zero lower bound, we go back to a more intuitive definition of credibility: announcing an objective and not being able to attain it.
Why are interest rates so low? We have explained that the reason is the weak credit situation for financing investment.
Francesco Saraceno | FT Alphaville‘s Matthew Klein goes back to the issue of financial stability and monetary policy. A recent speech of Bank of Canada’s Timothy Lane is the occasion for Klein to reassess monetary policy before the crisis, when policy makers (in particular he refers to Ben Bernanke, but the Fed chair was in good company) dismissed fears of asset price bubbles, thus failing recognize, and to counter, the buildup of the crisis.
Monetary policy is not equipped to control the real economy and the financial economy at the same time. Its aim is to moderate the fluctuations in real variables, GDP, employment and prices. But this destabilises the financial market, fuels speculation and increases household and corporate debt with the banks.
Does central banks’ “communication” matter? Some analysts believe it does. Therefore, Draghi may now have to work to repair his reputation as “Super Mario”.
By Fernando Barciela | Board member at Ferrovial, amongst other Spanish listed companies, Juan Arena was President of Bankinter from 2002 to 2007. “The crisis comes when assets prices drop. Then we have to choose between debt haircuts or raising asset prices via inflation and money printing,” he says.
South Korean economist Ha-Joon Chang argues that although orthodox thinking is to cut debt, the most effective way for countries to grow is to boost their income. As for the recovery, this expert in emerging markets notes that the world economy is not really picking up in the way that it usually does after a big downturn. This is the first part of our conversation.