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monetary policy

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Markets 4th July 2014

Will ECB credit boost work?

MADRID | By J.P. Marín Arrese | Mario Draghi unveiled the requirements to be met for drawing cheap money from the targeted long-term facility on Thursday. Those look extremely loose and scarcely demanding. Banks may cash up to 7% of their net lending to businesses and households in the auctions scheduled later on this year. A move that could lead to a massive €400 billion funding injection, should bidders make full use of their potential rights. Borrowing four-year tranches at interest rates so low as 0.25%, seems indeed an unbeatable incentive. 

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Markets 30th June 2014

BIS warns over stimulus’ diminished effect over time; IMF asks for more

MADRID | The Corner | Swiss-based Bank for International Settlements (BIS) is concerned about a troubling disconnection between “markets’ buoyancy and underlying economic developments globally.” The international body representing central banks believes the risk of central banks normalizing monetary policy too late and too gradually shouldn’t be underestimated, pointing out that extremely accommodative monetary policy has a diminished effect over time. Meanwhile, the IMF has been asking to break the lethargy of the European economy with measures against low inflation for months with more stimulus.

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Markets 27th June 2014

Fed tapering: Doubts resurface again

MADRID | JP Marín Arrese | The revised growth figure for the US economy in Q1 comes as a nasty surprise. It has dampened market sentiment worldwide. Earlier assessments blaming bad weather the moderate setback no longer hold when faced with a downturn close to 3%. Even discarding a fallback into full-fledged recession, it undoubtedly points to a markedly weaker performance than expected. The Fed tapering strategy is confronted with a baffling dilemma.

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In Europe 27th June 2014

ECB – Most likely done now

ZURICH | By UBS analysts | On 5 June, the ECB delivered a comprehensive monetary policy package, comprising cuts in the refi rate (from 0.25% to 0.15%), the deposit rate (from zero to -0.1%) and the marginal lending facility (from 0.75% to 0.4%). The ECB also rolled out the ‘full allotment mode’ – the commitment to supply unlimited liquidity (against adequate collateral) at the refi rate – from July 2015 to December 2016, and it will inject liquidity by ending the sterilisation of the Securities Markets Programme (SMP) portfolio. 

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World economy 7th June 2014

Monetary policy- the way we were (without revisionist history)

SAO PAULO | By Benjamin Cole via Historinhas | Sadly for Americans, the Fed of 2008 would pull out the 50-year-old playbook and repeat the mistakes of the Fed of the 1950s. Rattled by minor increases in prices, the 2008 Fed stomped on the brakes, bringing on the Great Recession from which the nation has yet to fully recover.

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In Europe 30th May 2014

ECB: When monetary policy involves exploration

BERLIN | By Jean Pisani-Ferry via Caixin | The small world of central bankers, market participants, economic officials and financial journalists is feverishly debating whether the European Central Bank (ECB) is about to embark, and should embark, on an unconventional monetary policy course. For the outsider, the whole discussion may look odd: Why has the issue become important? Hasn’t the ECB already embarked on such a course?

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World economy 16th May 2014

The ECB will play by the book

MADRID | The Corner | Mario Draghi says the ECB is comfortable with taking action in June, and markets see it as a more or less done deal. This time the Bundesbank is not likely to say a word, as basic economic theory shows there is not much else to discuss: when money is pumped into a system, it shows up either like inflation or growth. And the Eurozone needs both.

 

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In Europe 15th May 2014

Draghi: when words replaced monetary policy

MADRID | By Carlos Díaz Güell | Definitely, Mario Draghi has turned communication into the essential tool for the European central bank’s policy to make sense without taking any measure at all. Month after month the ECB’s president resources to words instead of actions, but some analysts start to dislike this considering they have been long waiting for a move from the institution. 

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Markets 24th April 2014

Draghi prepares ground for awaited QE

MADRID | By Ana Fuentes | How much is enough? Mario Draghi announced that the ECB’s Governing Council is unanimously committed to “using both unconventional and conventional instruments to deal effectively with the risks of a too-prolonged period of low inflation.” His most explicit comments came as EZ inflation slowed to 0.5 percent last month, the weakest pace in more than four years, whereas the central bank’s target inflation is at 2%. Excess liquidity in the 18-nation currency bloc financial system has dropped to 92.9 billion euros ($128 billion), the lowest level since December 2011. When will Mr Draghi feel real risks?