Monthly Archives: November 2012

Welcome to a live blog of Mario Draghi’s press conference from ECB HQ in Frankfurt. With rates held and Mr Draghi already having worried investors with his remarks on Wednesday about a slowing German economy, attention will be on what more the bank’s president has to say about the main driver of Eurozone growth. Brought to you by Ben Fenton and Ben Hall.

 

14.47: That’s it for this live blog, but….

…the last word goes to the FT’s Frankfurt bureau chief Michael Steen (well it is his city and his newspaper). His view of the most interesting line from the Draghi press conference:

“Pressed on ways ECB might ease Greek funding problems, Draghi said the bank already agreed to send back any profits it made from Greek bond holdings to the central bank in Athens which could then be transferred to government. The ECB was “by and large done” helping Greece within its mandate he said.”

14.45: Here is an instant reaction from Howard Archer, chief UK & European economist at IHS Global Insight:

ECB President Mario Draghi appeared to ease open the door to a cut in interest rates over the coming months and potentially as soon as December. Potentially significantly when asked whether the ECB had discussed an interest rate cut at their November meeting, Mr. Draghi commented that “we always discuss all instruments.” This contrasted to his comments after both the September and the ECB meetings, when Mr. Draghi said that the ECB had not discussed cutting interest rates. Mr. Draghi also commented that the ECB stands ready to act on standard monetary policy as well as on non-standard policy. Interestingly, though Mr. Draghi indicated that the ECB had not discussed negative deposit rates (they were cut to zero in August).

Furthermore, Mr. Draghi acknowledged that the Eurozone growth situation and outlook had weakened recently, and hinted that the ECB’s GDP growth staff projections would be revised down in their December forecasts. The ECB’s statement observed that “most recent survey evidence for the economy as a whole, extending into the fourth quarter, does not signal improvements towards the end of the year.” Furthermore, the ECB considered that “growth momentum is expected to remain weak” in 2013, largely due to the need of balance sheet adjustments in both the financial and non-financial sectors, an uneven global recovery and high uncertainty. Mr. Draghi has also expressed concern recently over very high and rising Eurozone unemployment. Reinforcing this downbeat assessment of Eurozone growth prospects, the ECB statement observed that “the risks surrounding the economic outlook for the euro area remain on the downside.”

Meanwhile, the ECB’s view on inflation does not appear to preclude an interest rate cut in the near term. While the ECB expects Eurozone consumer price inflation to remain above 2.0% and at elevated levels for the remainder of 2012, the bank sees inflation “declining to below 2.0% again in the course of next year”. The ECB regards long-term inflation expectations as “well-anchored” and believes that underlying price pressures should remain moderate, with the result that current levels of inflation should be “transitory”.

 

Chris Giles

It is six days since Bank of England internal reviews urged more transparency in monetary policy. The BoE’s Court – its governing body – welcomed the review and promised to act.

Today was the first test of that transparency. The BoE failed at the first hurdle. 

Claire Jones

Guest post by Ed Crooks, US industry and energy editor

A pleasurable consequence of my research into the economic impact of the giant storm Sandy was that I spent spent some time reading the work of the great French economist Frédéric Bastiat, who more than 160 years ago set out the foundations for the way we still think about the economics of natural disasters today.

Bastiat is not as well-known as he deserves to be in the English-speaking world, perhaps because of a reflexive Anglo-American view that “great French economist” is a contradiction in terms. But as the collection of his work at the excellent website bastiat.org makes clear, he was a brilliant man: full of sharp and original insights expressed in his distinctively pithy style.

The description of the famous “broken window fallacy”, which explains why natural disasters do not make an economy better off, is a case in point, packing a wealth of ideas into just 846 words. 

Claire Jones

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MPC/ ECB votes

Will the Bank of England’s Monetary Policy Committee opt for more quantitative easing on Thursday? Most now think more money printing is unlikely. 

Bank of England©Getty

Excessive deference and hierarchy are damaging the Bank of England’s effectiveness, according to three independent reviews that criticise the central bank’s culture.

The reviews into operations during the financial crisis found that officials in Threadneedle Street had learnt “rapidly” and handled the crisis “effectively”, but were also critical of the cental bank’s governance culture.

 

Claire Jones

Frequent readers of Money Supply will be aware of FT economics editor Chris Giles’ frustration with the Bank of England’s secrecy.

Chris has often criticised the Bank for its reluctance to provide more information to accompany the publication of the Inflation Report’s fan charts, which represent the Monetary Policy Committee’s views on where inflation and growth are heading and provide an important signal on the direction of policy. 

Claire Jones

Charlie Bean’s speech on Wednesday evening was grim, even by central bankers’ standards.

Mr Bean is the Bank’s deputy governor with responsibility for monetary policy. But he doesn’t seem to think that particular policy strand can do much good. Either now, or in preventing the next bubble.

Not only did Mr Bean echo the governor’s warnings over the effectiveness (or lack thereof) of more quantitative easing in the current climate, he is also sceptical that monetary policy can curb the build-up of credit bubbles.