BoAML | As the impeachment is no longer an obstacle for President Michel Temer’s government to go ahead with its economic agenda, we believe focus will likely shift back to the timing of the presentation of reforms and the start of the monetary policy easing cycle.
The European Central Bank kept monetary policy unchanged: interest rates on hold and made only its previous broad commitment to run bond-buying for as long as needed, stopping short of a formal extension of quantitative easing, as expected on Thursday. Indeed, the institution didn’t make any adjustments to its quantitative easing program of asset purchases. That program includes monthly purchases of 80 billion euros and is set to run at least…
Money in circulation (M2 in the US, M3 in the Eurozone) is not created by the central bank, but by the private banks when they lend. These loans are the fundamental countepart of M2 and M3. Loans are converted into deposits which provide the liquidity for us to function.
J. L. M.Campuzano (Spanish Banking Association) | During one of the conferences at last week’s Jackson Hole meeting, ECB council member Benoit Coeure analysed the extreme monetary measures taken by the ECB (in reality by all the main central banks) during the crisis. His opinion was that the neutral interest rate equilibrium is now very low (the product of a combination of low potential growth and low inflation expectations) which explains the remainder of the exceptional measures implemented.
Why are interest rates so low? We have explained that the reason is the weak credit situation for financing investment.
The outstanding labour market performance in the US has triggered widespread speculation of a Fed rate hike as early as September. Nonetheless, most new jobs are part-time, while the hourly wage increase lags well behind its pre-crisis pace.
J. L. Martínez Campuzano (Spanish Banking Association) | Perhaps one of the most important conclusions of the G20 meeting held in China was the need for monetary and fiscal instruments to fuel demand. But also for reforms to adjust supply and increase growth potential. There is no doubt that every instrument of economic policy is needed in the fight against weak growth and low inflation.
J.L.M. Campuzano (Spanish Banking Association) | The central banks really need some new arguments for extending their current expansionary monetary policy. As well as for not withdrawing some of the existing measures. The alternative is to get carried away.
As the Brexit initial turmoil little by little abates, the ECB has no immediate reason for acting. Its room for manoeuvre already seems extremely tight. Running negative rates allows a most limited scope for driving down the money price. The Euro slide provides on its own enough impetus to the economy. The case for further loosening lacks of enough ground. The wait-and-see stance by the Federal Reserve suffices to shore up the ailing pound.
Fernando Fernández is a member of the board at Bankia and Red Eléctrica. Apart from the challenges presented by the macroeconomic environment and the technology revolution, he believes that Spain’s banks have to establish a new kind of relationship with their clients and consolidate the sector’s new size.