Financial market tensions are serious – but not yet acute. That is clear from today’s offer of seven day dollar funds from the European Central Bank in conjunction with the US Federal Reserve. Demand was precisely nil – as it has now been in four of the six such offers since they were re-introduced at the start of May. (At the first and third $9.2bn and $5.4bn were taken.)
One reason is that the interest rate agreed with the Fed is high (1.17 per cent in today’s offer). But the lack of demand also shows that, in spite of apparent difficulties obtaining dollar liquidity, eurozone banks are not having to grab whatever they can. Jean-Claude Trichet, ECB president, last week said it was good that the facility existed. “If it is not utilised, that is also good because that means that there was no need for it.” Read more
Europe’s debt crisis must be serious: one of the European Central Bank’s most conservative policymakers has admitted it might be time to throw away the textbooks. In an interview with Die Zeit, the German weekly newspaper, Jürgen Stark, an executive board member, defended the ECB’s decision to intervene in eurozone bond markets – despite fierce resistant from former top officials at the Bundesbank, where he was previously vice president.
“I would like to differentiate between those who have to take decisions and bear responsibility and those who comment on developments from outside,” Mr Stark said. “We have had to deal with a crisis that no politician or central banker in Europe had experienced in 60 years. In such a case, the application of pure textbook knowledge is not be advisable.”
But Mr Stark’s new-found flexibility has limits. Read more
Chile, which has bounced back more strongly than expected from a devastating earthquake at the end of February, has hiked its key lending rate by 50 basis points, becoming the latest country in the region to start reining in monetary stimulus measures after recent rate rises by Peru and Brazil.
The half-point hike, to 1 per cent, was at the top end of market expectations, wrongfooting many who had expected the bank to take a more softly-softly approach. The key lending rate had been at a record low of 0.5 per cent since July 2009 and the bank had not raised the rate since September 2008, when it was 8.25 per cent. Read more from Jude Webber on ft.com.