I called the end too soon. The Argentine central bank fiasco has clearly outlived Martín Redrado stepping aside. In an unexpected twist, a presidential ally was chosen to head the country’s central bank.
From tomorrow’s paper… Read more
When the FT’s economics team in London was musing about the best metaphor for monetary policy and quantitative easing today, we couldn’t get Toyota out of our heads.
Bank of England officials have consistently said that even if QE is suspended, the Bank’s monetary policy would still be the equivalent of a driver with her foot slammed on the accelerator pedal. The trouble is the economy does not seem to be responding rapidly. Read more
Extreme summitry provokes extreme events – a less-than-serious comment from Jean-Claude Trichet, ECB president. He told today’s press conference was looking forward to travelling this weekend to Iqaluit, in frozen north Canada, for a gathering of G7 finance ministers and central bank governors. “We will have the right environment to be as cool as possible,” he said.
European Central Bank’s scriptwriters had an easy day. The statement on monetary policy by Jean-Claude Trichet, president, at today’s press conference was virtually unchanged from January’s – another sign that official interest rates are firmly on hold. (Colleagues complain about Bank of England and US Federal Reserve meetings becoming boring. Us ECB watchers are used to this – remember the main ECB interest rate remained unchanged for more than two years up to December 2005)
However, when it came to the questions, Mr Trichet had a new argument about the way the eurozone operates. There was a “misunderstanding” about how help was given to weaker countries, he said. Rather that acting after the event, via bail-outs with conditions attached, eurozone membership helped “ex-ante”. Countries’ current account deficits were funded automatically as part of Europe’s monetary union, he explained, while “conditionality” came from the European Union’s “stability and growth pact,” which sets limits on public finances. Read more
The MPC voted to keep the overnight deposit rate and overnight lending rate unchanged at 8.25 per cent and
9.75 per cent, respectively. The discount rate was also kept unchanged at 8.5 per cent.
As expected, the key ECB rates were kept steady today: rates on the main refinancing operations, marginal lending facility and deposit facility are still 1 per cent, 1.75 per cent and 0.25 per cent, respectively.
“Euro area economic activity continued to expand around the turn of the year. Looking ahead, the Governing Council expects the euro area economy to grow at a moderate pace in 2010,” ECB President Jean-Claude Trichet told the news conference. “The recovery is likely to be uneven and the outlook subject to uncertainty,” he added.
Talk about rationalisation after the fact. The one thing consistent about the Bank of England’s communications over QE has been its inconsistency. Officials always insist the policy has worked, but have repeatedly changed their stated intermediate objectives for QE and how they were judging its success. The Bank’s communication around QE has been a classic example of “policy-based evidence-making”. Gordon Brown, the master of the dark art, would approve.
Today, as the Monetary Policy Committee has just announced a pause in the creation of money and purchases of assets, it has said almost nothing about QE, except that £200bn was the “appropriate” amount to “to keep inflation on track to meet the 2 per cent inflation target over the medium term”. QE and low interest rates would, in any case, “continue to impart a substantial monetary stimulus to the economy for some time to come,” the MPC continued.
I am deeply indebted to Jessica Winch, who analysed all Bank communications over the past year for the Financial Times. She has compiled the following evidence on the QE and the Bank.
This first chart compiles the intermediate objectives for QE that the MPC has declared are important in 2009 with colour coding to represent the proportion of the total times in a month a particular objective was aired. Red means that objective was not mentioned in the month and the proportion of mentions rises through orange, yellow and lime until bright green represents a reason that was used more than 30 per cent of times in a particular month.
Without getting bogged down with the precise figures – there was a dearth of statements for example in September and December so those months have been excluded – it is obvious the Bank has flipped and flopped over the intermediate objectives for QE last year. It was all about expanding the money supply and the price of corporate bonds until it wasn’t; it had little to do with Read more
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