The Fed is, as I write this, holding a meeting on the December Basel committee proposals on capital and liquidity. The meeting, announced last week, comes in between normally scheduled talks, and a month after the official end to the comment period. The timing may seem unusual, but if the US central bank doesn’t hold the meeting now, it risks losing its opportunity to go on the record about its position on capital adequacy rules before the financial reform bill passes, say economists.
“[The meeting is] a response to the quickening pace of financial reform in the US Congress. And also in response to the debates going on in Europe, particularly in Germany, the Fed wants to go on record and attempt to influence lawmakers as we approach passage and reconciliation of the final reform package,” said Joseph Brusuelas, chief economist at Brusuelas Analytics. Read more
Spain came close to its first debt auction failure on Tuesday, highlighting the funding problems for weaker eurozone economies.
The government’s difficulties in selling €6.44bn ($7.96bn) in one-year and 18-month bills sparked worries over its 10-year debt auction on Thursday. Read more
We already know the Riksbank is planning to raise its key rate from a record low of 0.25 per cent this summer or early autumn, because the Swedish central bank has a policy of forecasting its rate path. But that hasn’t stopped the guessing games in the market as analysts try to decipher whether the move will come at the next meeting on June 30 or at the one after in September.
Bank governor Stefan Ingves wouldn’t give any clues when he spoke to the Financial Times today but his warnings on rising household indebtedness will only fuel expectations of a July hike, following the meeting on June 30. Sweden would become only the second western European country to tighten monetary policy since the financial crisis, after neighbouring Norway.
Low rates have encouraged a surge in mortgage lending that has Read more
The Senate has unanimously approved an amendment which requires the US executive director of the IMF to reconsider bailing out foreign nations where public debt exceeds GDP. That means Greece. And perhaps Spain, Portugal, the UK and even—ironically—the US, in future.
Proposed on May 12, Senator Cornyn’s amendment applies to the Restoring American Financial Stability Act of 2010, and:
requires the Obama Administration to evaluate any proposed bailout of a foreign nation where that nation’s public debt exceeds its annual Gross Domestic Product, and then to certify to Congress whether the bailout loan will be repaid. If the Administration cannot certify that the bailout loan will be repaid, it will be required to oppose the bailout and vote against it at the IMF.
The US is exposed to the eurozone crisis via the IMF, which pledged €30bn toward the €110bn Greek bail-out, and €220bn toward the eurozone Read more
What role for central bankers in the future? I have just been speaking to Stefan Ingves, governor of Sweden’s Riksbank, who argues that he and his colleagues may have to be more outspoken in the future in warning about risks to financial stability.
Greece has received the first tranche of bilateral eurozone loans, according to a press release from the Greek Ministry of Finance.
$14.5bn was disbursed this morning from the European Commission, adding to $5.5bn released from the IMF on May 12. The numbers break down as shown in column 2 of the table. Column 1 shows Money Supply’s estimate of how the total €110bn breaks down. Columns 3 and 4 compare the proportions lent so far. Read more
At the start of the year, Mervyn King gave the impression he was not bothered about high UK inflation. That complacency, stemming from his belief that his own house was in order, gave him the latitude to worry about fiscal policy. No Longer. It’s back to the day job of monetary policy.
As UK inflation rises to 3.7 per cent on the Consumer Price Index and 5.3 per cent on the Retail Price Index, the Bank no longer thinks this is a time for complacency. Mr King’s letter to the chancellor, explaining why annual CPI inflation is more than 1 percentage point above the 2 per cent target, is now almost a quarterly ritual. And the tone has changed. Read more
Well, at least the governor can still send his letter to the same address. UK inflation has exceeded its 2 per cent target by an even greater margin this month: consumer prices rose by 3.7 per cent, year-on-year to April. Last month the figure was 3.4 per cent.
Meanwhile the retail price index—which includes mortgage interest payments and other housing costs and excludes some financial services—is at 5.3 per cent, the highest since July 1991. Read more
There was not a little theatre behind yesterday’s announcement by the European Central Bank concerning its government bond purchase scheme. First, was the surprise statement on how much it had bought – €16.5bn – which had not been expected until today. Then, there was the flourish with which it said it would immediately “sterilise” the extra liquidity injected by re-absorbing it into one-week deposits.
The view in the market was that the ECB operation was aimed to a large extent at simply addressing German worries about possible inflation risks. Julian Callow, European economist at Barclays Capital said: “This is window dressing to soothe the German audience. For example, the ECB’s covered bond purchases have been three times the size yet there were not any similar operations to sterilise the impact of those on banking sector reserves.” Read more
Current policy rate: 0.1%
Consensus expectation: steady at 0.1% (Bloomberg, 14 economists)
Taylor rule policy: -3.3%
Headline consumer price index: -1.1% (March)
Inflation objective: 0 to 2%
Notable special measures in operation
• Y20,000bn in 0.1 per cent loans for a three-month term
• US dollar auctions, amount unlimited, 84-day term Read more