Bank of Canada

Mark Carney. Getty Images

Mark Carney, the next governor of the Bank of England, has suggested he will act much more aggressively to revive the UK economy when he takes charge next summer, including dumping the BoE’s much-vaunted inflation target if growth fails to pick up.

In a clear break with the views of the BoE’s current senior management, Mr Carney, now governor of the Bank of Canada, said on Tuesday that central banks should consider more radical measures – such as commitments to keep rates on hold for an extended period of time and numerical targets for unemployment – when rates are near zero. 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

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. 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

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

BoE minutes

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

FOMC minutes

The minutes of the Federal Open Market Committee’s mid-March meeting are out on Tuesday at 2pm in Washington, DC (8am GMT). This from the FT’s US economics editor Robin Harding on what to expect: Read more

Claire Jones

Sir Mervyn King has in the past been of the sort of central banker that has, at every opportunity, extolled the virtues of inflation targeting.

So comments at yesterday’s Inflation Report press conference, where the governor conceded that the Bank of England’s monetary policy framework has its deficiencies, were something of a surprise. Here’s what he said:

“I do think the experience of the last four to five years has raised some question marks about what inflation targeting can hope to achieve and whether it’s sufficient. I think our feeling now is, on its own, it’s not sufficient, it did not prevent the build up of a large degree of financial instability. And there is I think a debate to be had about whether other instruments are the right way to deal with that, through our Financial Policy Committee, or whether monetary policy should take other considerations into account.”

Could this be the beginning of the end for the Bank of England’s inflation target, at least in its current guise?

It’s far too early to say. Besides, with the governor due to depart mid-way through next year, whether or not the Bank alters its monetary policy framework will largely depend on the views of Sir Mervyn’s successor.

However, his calls for a debate could prove significant. Read more

Claire Jones

Davos is not as important an event on the calendars of central bankers as the IMF/World Bank meetings or the Bank for International Settlements Annual General Meeting. Neither the Bank of England nor the Federal Reserve will be bothering to send anyone, for instance.

But there are still plenty of Davos men (and one woman) among the senior ranks of the profession. Read more

Claire Jones

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

Volcker rule

Daniel Tarullo, the governor tasked with the regulation brief at the Federal Reserve Board, will answer questions on the Volcker rule following criticisms by the Japanese and Canadian authorities this week. Read more

Claire Jones

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

FOMC meeting

The highlight of next week’s calendar is Tuesday’s Federal Open Market Committee meeting.

Here’s the FT’s US economics editor Robin Harding on what to expect:  Read more

Claire Jones

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

Investors’ gaze will be fixed firmly on Frankfurt this coming Thursday, when the European Central Bank’s governing council will conclude its monetary policy meeting.

The governing council’s decision is out 13.45 local time (12.45 GMT). That’s followed 45 minutes later by a presser with ECB president Mario Draghi.

Here’s the FT’s Frankfurt bureau chief Ralph Atkins on what to expect: Read more

Claire Jones

Today’s co-ordinated action saw six of the world’s central banks agree to provide dollar funds a lot more cheaply. The European Central Bank, however, went a step further than its counterparts by lowering the margins, or haircuts, applied on the assets that borrowers hand over to the central bank in order to secure dollars.

This from the FT’s Robin Harding and Ralph Atkins:

In a further move to boost the attractiveness of its dollar offers, the ECB said it would value more favourably assets that have to be put up by banks as collateral to obtain US dollar liquidity. The current margin, or discount, applied would be cut from 20 per cent to 12 per cent.

That means that the ECB is not only willing to provide dollar funding more cheaply, but also take on more of the credit risk for doing so. This pretty much consigns the traditional way in which central banks have provided emergency funding to the dustbin.

But that may be no bad thing. Read more

Claire Jones

Walter Bagehot. Image by Getty.

Walter Bagehot. Image by Getty.

Walter Bagehot would be turning in his grave.

A  research note published by the Bank of Canada on Thursday has dared to challenge the 19th Century economist’s rule that monetary authorities should lend only at a penalty rate against good collateral in times of a liquidity squeeze.

Instead, the Bank of Canada suggests that it would perhaps be wiser for the rate charged to be cut, by lowering the haircuts set on collateral exchanged for central bank cash on signs of liquidity shortages. Read more

Claire Jones

The reputation of inflation targeting, which before the crisis was one of central banking’s sacred cows, has taken a bruising in recent years.

But Canada’s renewal this week of its 2 per cent target for the next five years would suggest that all was well – or at least broadly ok – with the framework.

Not so fast. Comments by Mark Carney, the governor of the Bank of Canada, highlight that if inflation targeting is to survive, then it will have to adapt.

But that could mean sacrificing some of its benefits. Read more

Claire Jones

The Bank of Canada is one central bank that has flirted with the idea of dropping its inflation target. Perhaps even as soon as at the end of this year.

Among the options was switching to a price-level target, an idea which Charles Evans, the president of the Chicago Fed, is also keen on.

Canada has now ruled that out. This from Bloomberg:

Canadian Finance Minister Jim Flaherty said the Bank of Canada’s mandate will remain unchanged, as the government prepares its five-year renewal of the central bank’s inflation target by the end of this year…
…”We will announce the range, of course, as we do,” Flaherty said. “Other than that, the mandate remains the same for the Bank of Canada.”

The decision by Canada, one of inflation targeting’s earlier adopters, is significant.

But, just because a price-level target is off the cards for now, does not mean that it will not be adopted at a later date.  Read more

Claire Jones

Rate decisions

Next week sees a host of central banks vote on monetary policy.

The Reserve Bank of Australia’s board is expected to hold rates on Tuesday. On Wednesday Sweden’s Riksbank, the National Bank of Poland, the Bank of Japan and the Bank of Canada are all set to vote. 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

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

Canada is less positive on the world economy than at its last meeting as it continues to hold rates. “The global economic recovery is proceeding broadly in line with the Bank’s projection,” the statement said. Last month, that same recovery had been proceeding “at a somewhat faster pace than the Bank had anticipated”.

It’s not all gloomy, though. Canada’s recovery is “proceeding slightly faster than expected” this month. Still, expect interest rates to remain on hold for some time yet: It remains the case that “any further reduction in monetary policy stimulus would need to be carefully considered.”

Canada strikes a bearish note as it chooses to keep policy rates on hold, saying “any further reduction in monetary policy stimulus would need to be carefully considered”. So the target for the overnight rate stays at 1 per cent; the bank rate at 1.25 per cent and the deposit rate at 0.75 per cent.

In an “environment of significant excess supply,” says the Bank, “considerable monetary stimulus” is still required for inflation to reach its target of 2 per cent +/- 1 per cent. Headline inflation was exactly on target at 2 per cent y-o-y in the most recent November data, but it does not yet appear stable. Rather, it fell from 2.4 per cent the previous month. Core inflation, which strips out volatile components such as energy, is trailing behind its 2 per cent target at 1.4 per cent.

Merry Christmas, banks. If you start running low on dollars in the new year, your central bank will now be able to access the greenback via currency swaps just extended by the Federal Reserve. For several countries, anyway.

Temporary swap agreements, set up most recently in May with the ECB, BoE, BoJ, SNB and Bank of Canada, were due to expire in January but have now been extended to August 1, 2011. These agreements allow a central bank to receive dollars in return for their own currency, which are then converted back at the same exchange rate at a later day (be it overnight or up to about three months). It’s a liquidity-providing, cash-crunch-prevention measure.

The swap lines are essentially unused at present. Only $60m is outstanding. So why extend? Robin, who’s writing on this for the paper as I type, says the move clearly reflects concerns about Europe. That would explain the curious coincidence of a BoE-ECB swap being set up on Friday (specifically to provide sterling to Ireland). Read more