Monthly Archives: October 2011

Claire Jones

When the Bank of England was considering quantitative easing back in early 2009, George Osborne, then shadow chancellor, lambasted it as the “last resort of desperate governments when all other policies have failed.”

A general election later and, unsurprisingly, Mr Osborne is a little less critical. This from today’s letter to Sir Mervyn King: 

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Claire Jones

The European Central Bank has held its main refinancing rate at 1.5 per cent, as expected.

We’ll be live blogging on Jean-Claude Trichet’s press conference, which begins at 13.30 London time, on The World blog. Mr Trichet is expected to announce more liquidity support for eurozone banks then. Read more

Claire Jones

The Bank of England’s Monetary Policy Committee just has backed more asset purchases.

It will buy £75bn-worth of bonds, taking its total stock of asset purchases to £275bn. Read more

Claire Jones

We’ll be live blogging the ECB’s press conference today on the FT’s The World blog from 13.30 London time.

The FT’s Frankfurt bureau chief Ralph Atkins has written here on what to expect.

Sir Mervyn King secured a decisive victory over the Treasury this week when the latter finally took on the task of credit easing. For the governor of the Bank of England – better placed to do the job, but adamant that this would taint the Bank’s independence – it was a triumph of bureaucratic precision over pragmatism; and of order over action. Britain will not thank him for it if institutional purity comes at the cost of jobs and corporate financing.

The Treasury disguised its surrender: chancellor George Osborne won plaudits from the Conservative party faithful for pledging to bring forward plans to ease the flow of credit to small- and medium-sized companies. But the proper reaction to his words would have been one of bemusement.

Credit easing is far from a new policy lever. It was first announced by Alistair Darling, Mr Osborne’s predecessor, on January 19 2009 and clarified in an exchange of letters between the governor and the then chancellor later that month.

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Claire Jones

Luckily for this blog, monetary policy is no longer as “boring” as Sir Mervyn King would like.

Still, it remains predictable enough that economists are rarely surprised by decisions. Especially for those central banks that target a certain level of inflation. Recently, however, most have been getting it spectacularly wrong on some of the key emerging market votes, notably Turkey’s and Brazil’s rate cuts.

They might have called it right had they read this collection of papers, published by the Bank for International Settlements yesterday.  Read more

Ralph Atkins

Jean-Claude Trichet holds his last press conference as European Central Bank president on Thursday. It is a moment in the ECB’s short history; Mr Trichet has been in charge for eight of its 13 years. But the time to dwell on such facts is limited. Instead a range of issues remain on the table. Here is a brief guide to what he might have to announce.

On ECB interest rates After September’s meeting, Mr Trichet deliberately left the door open for an interest rate cut. Since then the debate has swirled. Read more

Ralph Atkins

What if the worst-happened? Allianz, the German insurer, reckons a break-up of the eurozone would cost Germany three percent of its gross domestic product and a million jobs. Its calculations, in a report released on Wednesday, assume a number of highly-indebted eurozone countries exit the monetary union, leaving a “core” union centred on Germany and a few other countries such as France, the Benelux states and Austria.

In such an event, Germany would be hit by a large, Lehman Brothers-style confidence shock, a decline in global trade and a “massive appreciation” of the “core euro” against most other currencies, Allianz says. Read more

Claire Jones

Ben Bernanke

Ben Bernanke. Image by Getty.

Ben Bernanke, US Federal Reserve chairman, is testifying before Congress. All times are London time; Washington, DC is five hours behind.

Mr Bernanke is expected to field questions on Operation Twist, the FOMC’s other policy options and the state of the US economy.

 

 

17.43 This live blog is now closed. Follow FT.com for more on the testimony.

17.39 The key takeaways.

Markets have focussed on the Fed chairman’s comments that the FOMC is “prepared to take further action”.

But, while the testimony was undoubtedly downbeat on the prospects for growth, there was little on the US economy or monetary policy that Mr Bernanke had not already said, either in his Jackson Hole address or in his speech in Minnesota last month. He also signalled that, while QE3 was not “off the table”, neither was it imminent: “We have no immediate plans to do anything on that.” Read more

Claire Jones

Operation Twist has left gold bugs with little to shout about.

Since expectations of QE3 began to dwindle in early September, gold – long a hedge against currency debasement – has fallen to as low as $1,600, 16 per cent below its high.

Though talk of Operation Twist was the trigger, the plunge was worsened by investors cashing in on their gold in order to make up for shortfalls elsewhere. That is perhaps more disturbing than the fall itself – that gold can no longer be seen as the perfect hedge against volatility.

Both factors will weigh on demand from central banks’ reserve managers, who have helped drive up the price in recent years.

An additional concern for central banks is that gold is a very public investment; big purchases are usually broadcast. A fall in price would make them think twice about buying on the basis of fears that a further fall would prompt a raft of negative PR.

But there are also reasons to think demand will remain steady. It could even rise. Read more

Claire Jones

It is not only lenders that are calling for less stringent regulatory requirements.

The record of the Bank of England’s Financial Policy Committee meeting show its membership – made up of the same senior officials from the Bank and the Financial Services Authority that help set the regulatory agenda – was split over whether to lower capital and liquidity ratios.

This from the record:

The balance of opinion on the Committee was that it would be inappropriate in current circumstances for banks to reduce capital and liquidity ratios.

To be sure, none were siding with the banks’ view that Basel III is too tough. But some argued that reducing requirements for the time being – say from now until the economy recovers – may prop up growth by encouraging banks to lend.

This goes a lot further than the FPC’s statement, published last week, which said only that – if financial conditions worsen – it was “natural” that capital and liquidity buffers would be run down.

Unlike with the Monetary Policy Committee, we are in the dark about how individual FPC members vote. So it is impossible to tell how close, or otherwise, it was to recommending a lowering of capital and liquidity ratios.

But those reluctant to act were probably right.  Read more