Monthly Archives: July 2012

Claire Jones

It’s all looking a little sunnier in the eurozone what with the recent falls in borrowing costs for Spain and Italy. Are the black clouds drifting away?

Not quite. The big picture hasn’t changed much.

If anything, the latest data on unemployment and confidence (or lack thereof) suggests the growth outlook has gotten worse.

But it has been a decent few days for sovereign bonds. Spanish government’s borrowing costs and Italian yields are down on the back of comments made by Mario Draghi, European Central Bank president, which suggested the central bank could ramp up its crisis response at this Thursday’s governing council meeting of top central bank officials.

What were the magic words? Read more

Claire Jones

Mortgage approvals in the UK slipped to their lowest level in 18 months in June while borrowing costs rose to their highest level since the Bank of England cut rates back in March 2009, according to Bank data released this morning.

 Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

Three of the world’s major central banks vote on monetary policy next week.

The Federal Open Market Committee votes on Tuesday, the European Central Bank and the Bank of England on Thursday.

ECB action?

After ECB president Mario Draghi’s comments on Thursday morning, the governing council’s vote in Frankfurt is the most eagerly awaited. Read more

Claire Jones

ECB president Mario Draghi this morning made some very interesting remarks. This from Reuters:

 ”The euro area is much, much stronger than people acknowledge today.” Read more

Claire Jones

House price rises of a little over 5 per cent would barely make the Federal Reserve, or the Bank of England, blush. Not so at the Bundesbank.

This is what Jens Weidmann, Bundesbank president, had to say back in March:

Jens Weidmann: We will see inflationary pressures rise in Germany. We already see that partly in some markets, such as real-estate. House prices increased by 5.5 per cent last year, which is not impressive by London standard, but still for Germany is something that we will need to watch.

The house price boom has gathered pace. The most recent data from the OECD shows that German house prices rose 9.5 per cent in the year to Q1.

Mr Weidmann has signalled that Buba will act if it thinks the boom is getting bubblicious, possibly through macroprudential measures such as limits on loan-to-value ratios, which cap the amount mortgage holders can borrow against the value of their property.

Klaus Baader at Société Générale is more relaxed, however.  Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

With the summer break upon us, central bankers are taking it pretty easy next week.

However, Sir Mervyn King, the governor of the Bank of England, will Read more

Claire Jones

Something odd is happening with the ECB’s deposit facility – banks are still bothering to use it.

Predictably, the amount parked at the facility plunged last week after the governing council’s decision to pay nothing on deposits took effect. The slump in deposits was pretty much matched by a rise in funds held in banks’ ECB current accounts – through which most of their central bank business is conducted.  But since then, the amounts transferred to the deposit facility overnight has remained more or less the same.

 

So why are banks still bothering to lock up funds in the deposit facility overnight now that there’s no monetary advantage to parking them there? And to what extent would their behaviour change if the deposit rate turned negative? Read more

Claire Jones

In the current climate, it might have been expected that the Bank of England would remove any reference to a certain interbank rate from its official documents.

Not so. The minutes of the Monetary Policy Committee’s July meeting, out today, featured the following references to Libor:

Sterling funding market conditions had seemed to improve following the announcement earlier in the month of the creation of a Government and Bank of England Funding for Lending Scheme (FLS) and the activation of the Bank’s Extended Collateral Term Repo Facility (ECTR).  Sterling three-month LIBOR had fallen by around 10 basis points since those announcements and market expectations of three-month LIBOR in six months’ time had fallen by around 20 basis points.  Although the controversy surrounding the investigation into the manipulation of LIBOR had so far not had a broad effect on market prices or conditions, there was a risk it might do so in future.

It’s not at all obvious why the MPC continues to use Libor as its key gauge of market funding conditions. But what’s really interesting about the text above is that the MPC thinks there is a risk that the Libor scandal could raise borrowing costs, undoing much of the Bank’s good work in the process. Read more

Claire Jones

Federal Reserve chairman Ben Bernanke. Image by Getty.

Federal Reserve chairman Ben Bernanke. Image by Getty.

Hello and welcome to today’s live blog on Federal Reserve chairman Ben Bernanke’s testimony on monetary policy to the Senate’s Committee on Banking, Housing and Urban Affairs. 

The hearing begins at 10am DC time (3pm UK time). 

All times are UK time. 

 17.26 This live blog is now closed.

17.26 That’s the last of the questions. The hearing is adjourned.

17.22 On alternatives to Libor, Bernanke says the general collateral repo rate is a “possibility”. Another possibility would be the overnight index swap rate. Crucially, both a observable market rates, rather than rates reported by banks. “I suspect [the alternatives] will be seriously considered unless measures are taken to restore confidence in Libor,” he says. “The problem is we have so many contracts that are based on Libor.”

17.17 The Fed chair (and scholar of the Great Depression) on European monetary and political union: Read more

Claire Jones

Some embarrassment for Paul Tucker today in the form of a chummy email exchange between him and Bob Diamond (see the final paragraph of the letter below). Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

Bernanke testimony

Fed chairman Ben Bernanke faces Congress next week for the central bank’s twice-yearly Monetary Policy Report to the Senate and the House of Representatives.

Will Mr Bernanke offer any clues that the launch of QE3 is imminent? This from the FT’s US economics editor Robin Harding: Read more

Claire Jones

Why it was needed

Lending has slumped and, what borrowing there is, has become more expensive. See charts below.

Funding for lending aims to make credit more plentiful and cheaper to obtain.  Read more

Claire Jones

Funds parked at the European Central Bank’s deposit facility have fallen by more than half in the past 24 hours. That is no surprise: on Wednesday the governing council’s decision, made last week, to pay nothing on deposits held at the facility took effect. It was probably more surprising that any bank bothered to use the facility at all.

The slump in deposits tells us nothing about whether the latest round of rate cuts have had the desired effect in boosting lending to households, businesses and governments in the eurozone. Read more

Robin Harding

There’s lots to learn from the June 2012 FOMC minutes although all the attention, as you’d expect, is on parsing the chances of QE3. I’ll do a bit of that below but here are some other points of interest:

I read the minutes as showing a fairly high chance of QE3 if the economy remains weak. Some evidence for that view: Read more

Claire Jones

The People’s Bank of China has not cut rates twice in a month solely because the domestic economy is showing signs of slowing down.

Officials in Beijing, and elsewhere in Asia, are easing monetary policy in part because they are intent on getting ahead of the curve should things get much worse in the eurozone and global trade collapse in the way in did in the months following Lehman Brothers’ failure.

Two fascinating speeches made in recent days by Federal Reserve and Bank of Japan staff highlight just how grave central bankers believe the threat from Europe actually is. Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

Libor scandal: Tucker hearing

Deputy governor Paul Tucker appears before the Treasury Select Committee on Monday afternoon to give his take on the Bob Diamond phone call. The session is due to begin at 4.30pm UK time (3.30pm GMT). Read more

Claire Jones

Not since Manchester miserablists The Smiths disbanded have there been many records as gloomy as that released by the Bank of England today.

The record of the interim Financial Policy Committee reveals members thought the risks to financial stability so serious that they were willing to consider a suspension of the Financial Services Authority’s world-leading liquidity rules. This from the FT’s chief regulation correspondent Brooke Masters: Read more

Claire Jones

Mario Draghi. Image by Getty.

Mario Draghi. Image by Getty.

Hello and welcome to today’s live blog on the ECB press conference. 

The governing council has just cut its main rate below 1 per cent for the first time in the ECB’s history. It has also cut its deposit rate to zero. 

All times are UK time. 

 

14.33 This live blog is now closed.

14.32 The questions end.

14.31 Mr Draghi says negative nominal interest rates — ie, actually charging banks to park funds at the ECB — have not yet been discussed. He doesn’t rule them out though, saying simply that they will not “elaborate” on further action.

The ECB president also dismisses concerns that they are “running low” on policy options. Read more

Claire Jones

The ECB’s governing council has cut its main rate below 1 per cent for the first time in the institution’s history, as expected. The main refinancing rate falls by 25 basis points to 0.75 per cent. The rate on the deposit facility has fallen to zero. The rate on the marginal lending facility has been lowered to 1.5 per cent.

Mario Draghi, ECB president, will take journalists’ questions from 1.30pm UK time. Read more

Claire Jones

The People’s Bank of China has cut interest rates.  This from Bloomberg:

The one-year deposit rate falls to 3 per cent. The one-year lending rate falls to 6 per cent. Read more