Monthly Archives: August 2011

Chris Giles

Martin Weale’s speech today shows how far the policy debate has shifted at the Bank of England. As recently as early July, this external member of the monetary policy committee was voting for higher interest rates. Now he is openly talking about restarting quantitative easing.

Mr Weale should certainly be praised for being as good as his words. In March he said he was perfectly happy to change his mind if the facts changed and he has done so. No longer voting for a rate rise does not indicate a previous error of judgment, only that circumstances have changed.

From his speech today, Mr Weale, one of the more hawkish MPC members, now clearly thinks that UK QE2 might be necessary and he believes it would work. Read more

Ralph Atkins

Maybe the eurozone debt crisis has had an unexpected, beneficial side-effect – getting the Germans to go shopping? German consumers’ propensity to spend saw a surprise rise this month, according to GfK, the Nuremberg-based research organisation. At 36.2 points, its “willingness to buy” indicator is at the highest since February and way above its long-term average.

The escalating debt crisis could provide an explanation, GfK argued. “Many Germans fear for the stability of their currency and are therefore more likely to spend their money on high-value purchases than to save for a rainy day,” it noted. If so, this would be good news for the rest of Europe, helping boost domestic demand at a time when economic growth is stalling. Read more

Claire Jones

Comments by Jean Boivin, a deputy governor of the Bank of Canada, have prompted speculation that the central bank is set to abandon its inflation target in favour of a price-level target.

The central bank, along with the Canadian government, will decide later this year whether it maintains its current monetary policy framework. And a price-level target is indeed one option up for consideration.

But is it likely to switch so soon? Read more

Ralph Atkins

Perhaps market tensions are not quite as bad as feared? The European Central Bank has reported there were no takers today for its weekly offer of dollar liquidity. Last week, a single bidder received $500m, which was seen by some as the start of a trend. The ECB offers dollars in conjunction with the US Federal Reserves at an above-market interest rate – so use of its facility is a sign of bank distress. In the event, it seems that the problem last week was specific and temporary. At least for now…

Claire Jones

Gill Marcus

Gill Marcus. Image by Getty.

Central bankers tend to pull their punches when it comes to criticising their political masters. In public, at least.

Not so Gill Marcus, the governor of the South African Reserve Bank. In one of the most gloomy – and forthright – speeches I’ve read from a central banker, Ms Marcus attacked politicians for “a lack of strong, unified and credible leadership”, which she said was leading to a loss of confidence and trust in officials and, potentially, the system as a whole.

Linking the unrest in London and Athens with a lack of such leadership, the governor said that in such a climate, “those presenting easy answers to what are very complex and difficult issues can readily gain support”.

The debt-ceiling debacle in the US showed some political factions “were willing to take the country, and indeed the world, over the brink.”

Eurozone leaders’ failure to deal “decisively” with difficult decisions on burden-sharing had “undermined support not only for their leadership but for the whole eurozone project”. She then implied that Greece was insolvent: Read more

Claire Jones

The European Central Bank’s decision to purchase Italian and Spanish debt sparked fears that the bond buying could stoke inflation, with some believing the central bank would struggle to mop up the money used to buy the debt through its weekly fine-tuning operation.

However, the central bank is so far managing to “sterilise” – as the technique of mopping up the excess liquidity is known – with ease. Read more

Claire Jones

The ECB settled €14.3bn-worth of government bond purchases last week, meaning that it bought that amount of debt between last Tuesday and the previous Wednesday.

The figure – down from the €22bn settled the previous week – takes the total amount of bonds bought through the securities markets programme to €110.3bn. Read more

Ralph Atkins

What exactly did Jens Weidmann, Bundesbank president, say when earlier this month he and other members of the European Central Bank’s governing council debated whether to  reactivate the ECB’s bond purchasing programme? He opposed the step, but has kept a discreet silence since.

A clue is offered in the Bundesbank’s latest monthly report, released on Monday. It notes that ahead of the July 21 eurozone summit, the interest rates on Spanish and Italian bonds had risen, but argues in the short term they would “in no way” have led to an unsustainable fiscal burden that required emergency action. Read more

Ralph Atkins

What could provide the eurozone with an effective backstop and ensure its financial stability? The lack of a safety net is the main reason why investors remain so nervous about Europe’s monetary union. In the US and UK, the central banks are seen - rightly or wrongly - as offering the ultimate defence.

With the European Central Bank only reluctantly buying eurozone bonds, and politicians split over common “eurobonds,” perhaps momentum might grow behind a proposal put forward by Daniel Gros, director of the Brussels-based Centre for European Policy Studies, and Thomas Mayer, chief economist at Deutsche Bank?

Their idea is that the European Financial Stability Facility, the EU’s new bail-out fund, should be given access to ECB liquidity – thus increasing substantially its potential firepower. Read more

Claire Jones

Jackson Hole

Most of the world’s senior central bankers (see last year’s attendee list) will head to the wilds of Wyoming from next Thursday to Saturday for the Kansas City Fed’s annual Jackson Hole economic symposium.

Among those attending this year are ECB president Jean-Claude Trichet along with his fellow executive board members José Manuel González-Páramo and Peter Praet, Bank of England deputy Charlie Bean, and Fed chair Ben Bernanke. Fed vice chair Janet Yellen, and governors Sarah Raskin and Elizabeth Duke will also be at the event.  Read more