Monthly Archives: August 2012

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

ECB vote

The big event on next week’s calendar is the European Central Bank’s governing council vote on Thursday, which is followed by ECB president Mario Draghi’s press conference.

The decision on interest rates is due out at 1.45pm in Frankfurt(11.45am GMT). Most expect no change. The presser begins 45 minutes later, at 2.30pm.

Mr Draghi is widely expected to reveal at least some of the details of the ECB’s new bond-buying programme. But there has been some disagreement among members Read more

Robin Harding

This should be interesting. Michael Woodford – probably the world’s pre-eminent monetary policy theorist – is delivering his paper at Jackson Hole and it amounts to a rebuke of how the Federal Reserve has gone about its work of monetary easing.

Mr Woodford’s 97-page paper is deeply sceptical about the efficacy of quantitative easing and endorses the idea of a central bank target path for nominal GDP. From his conclusion: Read more

Claire Jones

When then-IMF chief economist Raghuram Rajan used his Jackson Hole address in 2005 to warn that there were problems afoot in the global financial system, the reception he got was as frosty as the snow-covered peaks of the mountains that surround the Wyoming resort.

Mr Rajan was accused of being a party pooper at what, to all intents and purposes, was supposed to be Alan Greenspan’s farewell bash after almost two decades as Fed chair.

An icy chill could well be wafting round the symposium right at this moment. Andy Haldane, the Bank of England’s executive director for financial stability is about to call on the world’s top economic officials to cast aside more than 50 years’-worth of thinking on how the global financial system should be regulated.

This from the FT’s chief regulation correspondent Brooke Masters: Read more

Robin Harding

The first paper of Jackson Hole 2012 is a statistical review on cross-border financial contagion by Kristen Forbes of MIT. With the eurozone crisis rumbling on, it is a timely topic for Jackson Hole, although the paper illustrates rather than resolves some frustrations with the post-crisis literature on contagion.

Increasingly, financial assets tend to move in unison across borders, both in normal times and during crises. Prof Forbes describes that phenomenon in detail, especially for times of crisis, and then offers some policy conclusions on how to prevent and mitigate contagion through four main channels. Here is a crude summary: Read more

Claire Jones

News that Mario Draghi has pulled out of the Jackson Hole symposium has stoked expectations that the that European Central Bank president will unveil details of the bank’s  revamped bond buying programme after next week’s governing council vote.

Much uncertainty surrounds the details of the programme ahead of Thursday’s decision. Here’s a guide to some of the details that markets – and some eurozone sovereigns – will look for Mr Draghi to announce at the post-meeting press conference.

Countering convertibility risk 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

Jackson Hole

One of the biggest events on the central banking calendar takes place at the end of next week when top officials will make their annual trip to the wilds of Jackson Hole,Wyoming– the venue for the Kansas City Federal Reserve’s annual symposium.

Following this week’s dovish set of FOMC minutes, markets are eagerly awaiting Fed chairman Ben Bernanke’s remarks for clues on what the committee will do next. Here’s the FT’s US economics editor Robin Harding with some clues on what to expect: Read more

Robin Harding

Ben Bernanke, the Fed chairman, has replied to a series of questions from Congressman Darrell Issa, who chairs the House Oversight and Government Reform Committee.

The answers are mostly pretty unrevealing — a large percentage of them simply cite the Fed’s mandate — but if you share concerns about excess bank reserves, QE as a tax on savers, or exiting from easy monetary policy then Mr Bernanke’s responses are hereRead more

Claire Jones

The rich. That’s according to a Bank of England study, out today, on the distributional effects of quantitative easing.

This from the research: Read more

Claire Jones

It is often said that China will grow old before it gets rich. The argument goes that China’s rapidly-aging population and gender imbalance – a result of its one-child policy  – will stymie growth  before economic living standards have caught up with those in advanced countries.

But could China’s aging problem also result in a spectacular property collapse? The Bank of Japan’s deputy governor Kiyohiko Nishimura thinks so. Doing his bit for Sino-Japanese relations, Mr Nishimura on Tuesday claimed that Chinese property prices are about to go into the “danger zone” because of this demographic trend.

In a fascinating talk at a Bank for International Settlements and Reserve Bank of Australia conference in Sydney on Tuesday, Mr Nishimura argues that so-called “malign” property bubbles, ie those which result in a spectacular collapse, are often a result of demographic transition from a “population dividend”, when the working-age population is at its height, to the “burden of an ageing population”. Read more

Claire Jones

In the early days of the crisis, Ben Bernanke and Jean-Claude Trichet injected liquidity on an unprecedented scale to prevent a financial meltdown. Central bankers elsewhere did little to help their cause.

In fact, their reserve managers – the people responsible for investing monetary authorities’ foreign exchange stockpiles – made matters worse.

Reserve managers often stash a chunk of their stock piles in short-term bank deposits. But at the start of the crisis, research produced by the IMF found they had pulled about $500bn of deposits from the banking sector, contributing to financial instability in the process. This from the research:

IMF: Although clearly not the main cause, this pro-cyclical investment behaviour is likely to have contributed to the funding problems of the banking sector, which required offsetting measures by other central banks, such as the Federal Reserve and the Eurosystem central banks.

There is, as the paper notes, “a potential conflict between the reserve management and financial stability mandates of central banks”. And so news that Norway’s sovereign wealth fund (managed by the central bank, though the asset allocation strategy is decided by the finance ministry) will take on more risk during downturns is to be welcomed. Read more

Claire Jones

Just in case anyone hadn’t got the message at last week’s inflation report presser, the Bank of England has today pretty much confirmed that it won’t consider further cuts to bank rate over the next few months.

Last month’s minutes featured a discussion on the relative pros and cons of cutting bank rate from its current record low of 0.5 per cent. Notable for its absence from the August meeting minutes, released this morning, was any such discussion. Further cuts are, for now, not even under consideration. 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

Bank of England minutes

The minutes of the Monetary Policy Committee’s August meeting are out on Wednesday at 9.30amUKtime (8.30am GMT). Read more

Claire Jones

Mervyn King

Mervyn King. Image by Bloomberg.

Hello and welcome to the live blog on the Bank of England’s latest Inflation Report. 

The governor, Sir Mervyn King, will be taking questions from the press from shortly after 10.30am. 

All times are UK time. 


11.54 The live blog is now closed.

11.53 Here are the key takeaways:

  • The inflation forecast suggests the MPC has some easing bias, though more action is far from guaranteed.
  • If the MPC does ease, further asset purchases look more likely than cuts to Bank rate.
  • The governor’s comments indicate that the Bank is not at all pleased with the way in which the US is conducting its investigation into StanChart (see 11.30).
  • Sir Mervyn also didn’t think Draghi’s latest plan to save the euro was all that great (see 10.58).
  • The Bank is probably more upbeat on Funding for Lending than I’d originally thought. This from RBS’s Richard Barwell:

Richard Barwell: The Bank seems confident that the FLS will bring down funding costs and Paul Fisher spoke in terms of hundreds rather than tens of basis points. Obviously they cannot be sure that this will pass through one-for-one into retail rates, but relative to, say the impact of a bank rate cut, it looks pretty chunky.

11.36 Here’s the report in full along with the growth forecasts, which have — as expected — been revised down: Read more

Claire Jones

When Mario Draghi insisted last week that central banks buying short-term government debt falls “within the range of classical monetary policy instruments”, most thought he was just having a dig at Germany’s Bundesbank, which views bond buying as beyond the scope of the ECB’s mandate.

But Mr Draghi might have a point.

Quantitative easing – where central banks buy government bonds outright – has a longer history than most think. Interestingly, it is a history in which the Bundesbank has played a key role. 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

Bank of England Inflation Report

The Bank of England’s latest Inflation Report is out on Wednesday morning. The report will feature the Monetary Policy Committee’s latest forecasts for inflation and growth. Read more

Ralph Atkins

Mario Draghi. Image by Getty.

Mario Draghi. Image by Getty.

Hello and welcome to the live blog on ECB president Mario Draghi’s press conference.

The ECB’s monetary policy statement is due at 12.45. Mr Draghi’s press conference begins 45 minutes later.

All times are UK time.

14.54 This live blog is now closed.  Here are the main take-aways.

- The ECB could restart government bond buying – but there is no immediate intervention. The ECB “may undertake outright open market operations of a size adequate to reach its objectives,” Mr Draghi announced.

- But a “necessary condition” is that governments “stand ready” to activate EFSF/ESM’s bond buying tools. That would give the ECB political cover to act.

- No limit set to the size of possible ECB intervention. That’s a big difference to the ECB’s previous bond buying programme, which was described as “limited”.

- Financial markets are disappointed at the lack of immediate intervention. Spanish ten-year bond yields are above 7 per cent again.

- The ECB could also undertake “further non-standard monetary policy measures,” Mr Draghi said, without giving further details.

- The modalities of the ECB’s enhanced crisis response will be designed “over the coming weeks”.

- The Bundesbank opposed ECB bond buying, Mr Draghi acknowledged. That means it could still be an obstacle in weeks to come, undermining the ECB’s effectiveness.

- “The euro is irreversible,” Mr Draghi said.

- The main policy interest rate was left unchanged at 0.75 per cent.


14.53 Here is some scepticism from BNP Paribas.

The ECB did not change its monetary policy nor did it provide us with details about possible future actions. Stress on sovereign debt markets has to be addressed and the ECB could help. But once more, the ECB through the ball back in the politicians’ court. A restart of the SMP is possible, but distressed countries have to request help from the EFSF/ESM first…

14.47  Holger Schmieding, European analyst at Berenberg Bank, is more upbeat than financial markets:

“Draghi has delivered. And Germany should say thank you for that. Although the ECB did not start to actually intervene in bond markets today, Draghi sent a strong message that the ECB will do all it takes, including interventions in sovereign bond markets…This can stop the gradual slide of the German economy into recession and allow the overall Eurozone economy to return to growth around the turn of the year, with Germany likely to enjoy strong growth again next year.”

14.42   The lack of immediate action by the ECB has disappointed markets. Mary Watkins writes:

By mid afternoon, yields on 10-year Spanish debt were up 19 basis points at 6.91 per cent, while yields on benchmark Italian debt were 24bp higher at 6.17 per cent.

Spain’s Ibex index was up nearly 5 per cent, while Italy’s FTSE MIB was more than 3 per cent higher.

 14.32 The press conference is now over.

14.30 There will be “full disclosure” under the ECB’s revamped bond buying progamme, Mr Draghi said. Does that mean it will say how much of each countries bonds it has bought?

14.28 Mr Draghi explains what he meant by his statement that  the euro had to be “irreversible”. “It says ‘it is pointless to bet against the euro’.”

14.24 Here’s a good summary of the press conference so far for the Twitterati…

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14.22  By focusing bond buying on the shorter end of the yield curve, the ECB would remain consistent with “classical monetary policy,” Mr Draghi said. That was in response to a question about whether targeting longer term rates might have been of more help for the real economy.

14.20  Mr Draghi is keen to stress the sequencing: activation of the EFSF/ESB bond buying  instruments is a “necessary condition” for an ECB response, he argued. Actions by governments would be “as essential” as ECB action to restore its monetary policy transmission mechanism.

14.19 Julian Callow, European economist at Barclays, writes in a note:

We interpret this as a clear sign that the ECB is prepared to change policy significantly at its September meeting, in terms of purchasing debt without claiming seniority subject to the EFSF being deployed to buy government debt. Overall this is in line with our expectation; it still will depend on whether Spain and Italy (which have a summit now proceeding) will call upon the EFSF to do this.

14.15 Here is the FT’s updated news story Read more

Robin Harding

There is some kremlinology going on about the Fed’s new easing bias language:

“The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

In the Greenspan era “closely monitor” was sometimes code for an intermeeting action by the Fed, notes Eric Green at TD Securities, via Business InsiderRead more