The European Central Bank has stepped in to shore up the eurozone government bond markets in what appears to be its biggest such intervention since early July. The ECB has bought between €100m and €300m of Greek, Irish and Portuguese bonds so far this week, traders said on Wednesday, as worries over the health of some highly indebted eurozone economies resurfaced.
Yields on Greek bonds rose to levels last seen before the €750bn emergency rescue package was launched to avert the collapse of the eurozone bond markets in May. Although the amount of bonds bought by the ECB this week has been small, some strategists said the purchases were a sign that the European sovereign debt crisis was not over. Read more
At the next FOMC meeting on Sept 21st the committee will have to update its economic forecasts.
The Bank of Canada has raised the target for its overnight rate 25bp to 1 per cent, and its bank rate to 1.25 per cent, in spite of a rather bearish outlook:
Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields. Read more
The bond markets might be overdoing it a bit at the moment, Guy Quaden has acknowledged. Asked whether bondholders were wrong to fear deflation, the ECB governing council member told Belgian business dailies L’Echo and De Tijd:
“You cannot rule out that the bond markets are overdoing it at the moment… But deflation is as unlikely as strong inflation. Central banks will do anything to avoid deflation. They do not tolerate high inflation.“
Asked why the ECB had decided to extend to Q4 its offer of unlimited short-term credit to banks, Mr Quaden said that the money market was often more nervous toward the end of the year, and that certain longer-term refinancing operations were due to expire in the period. He underlined, however, the temporary nature of the help: “The banking industry,” he said, “cannot depend forever on the exceptional credit of the ECB.”
On the subject of fiscal austerity, he said neither he nor Jean-Claude Trichet would argue for brutal and immediate austerity, except in Greece. Read more
How far will Pakistan’s ruling elite, tainted with past allegations of corruption and profligate spending, give way to a credible new central bank governor who may really discipline the country’s wayward public finances?
That was the question widely making the rounds on Wednesday as Pakistan’s financial circles awaited confirmation of the appointment of Shahid Kardar, a respected veteran economist, as the new central bank governor.
Pakistan’s public finances are clearly in a mess especially especially following the destruction – estimated at $43bn – caused by floods in the past month. Yet, the government had already failed even before the new economic challenges in meeting key objectives agreed with the IMF, notably the public sector’s budget deficit. If Kardar steps in to lead the central bank, it will be a surprise choice.
The Oxford-educated economist and chartered accountant has a reputation of being straight-talking and uncompromising - Read more
A minor milestone occurs today. Paul Tucker, deputy governor for financial stability, is starting his 100th Monetary Policy Committee meeting. As someone who is regularly touted as a future Bank governor — and he must be in the frame for the job when it becomes vacant in 2013 — it is worth briefly looking at his voting record.
Thanks to research by Capital Economics based on the voting record, Tucker is mildly activist, mildly hawkish and mildly maverick. Since interest rates were 4 per cent when he joined the committee in March 2002 and they are 0.5 per cent now, it is not surprising that his average vote is to cut rates by 0.023 percentage points. Read more