Bundesbank

Michael Steen

Not the ECB (Getty)

The Bundesbank has weighed in on what forward guidance means for the European Central Bank and if you want the short version it boils down to: we have not forgotten about inflation.

The ECB pledged in July to keep interest rates at or below current levels “for an extended period of time,” which, as we’ve noted before has caused some confusion as to what precisely it means.

According to Germany’s central bank, that promise does not actually mean that interest rates cannot rise or that they will necessarily remain low for a long time. As it writes in its latest monthly report:

The decisive point in correctly interpreting this statement is that it is conditional on the unchanged obligation of the Eurosystem [the ECB and the eurozone’s 17 national central banks] towards its mandate of maintaining price stability (which means, operationally, medium term inflation that is below, but close to 2 per cent)… It follows that the ECB’s governing council has not bound itself. If higher price pressures become apparent in future compared to those expected now, forward guidance in no way rules out a rise in interest rates.

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Michael Steen

Small change

Search the pockets, wallets, purses, car cigarette ashtrays and homes of anyone in (almost) any eurozone country and you are likely to find significant heaps of small, brown iron-and-copper 1 and 2 euro cent coins.

They cost more to make than they are worth, there’s precious little you can buy with them (though the German post office does sell a €0.03 stamp) and they tend to accumulate in drawers and on flat surfaces at an alarming rate. So, one might reasonably ask, why not just get rid of them? Read more

Michael Steen

What could be worse in the eyes of a central banker than money counterfeiting? Well, killing people, even if judicially mandated, seems to be the answer. Germany’s Bundesbank on Thursday beat a hasty retreat from plans to send experts to Bangladesh next month to help combat a recent spate of money forgers. Read more

When David Marsh wrote his definitive biography of the Bundesbank in 1993, he chose the following sub title: “The Bank That Rules Europe“. Feared and revered in equal measure, the Bundesbank was the model on which the ECB was built. Imitation was not, however, the sincerest form of flattery for Germany’s central bank. The arrival of the ECB removed most of its direct authority over monetary policy, leaving it with only one out of 23 votes on the governing council of the new central bank.

Recently, the Bundesbank’s President Jens Weidmann has been in a minority of one on the question of whether to launch the ECB’s new programme of Outright Monetary Transactions, to which he is fundamentally opposed. He views the proposed purchases of government debt in the troubled eurozone economies as a thinly disguised monetary bail-out of profligate governments, something which the Bundesbank had believed from the very beginning to be outside the intention of the treaties.

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Michael Steen

The dust has yet to settle on the Bundesbank’s fight with the ECB over bond-buying, but this has not stopped Germany’s central bank from taking on another heavyweight global financial institution: the International Monetary Fund.

BuBa’s monthly report, published on Monday, includes a whole chapter entitled: “The IMF in a changed global environment.” It becomes clear fairly quickly that eyebrows are being raised in Frankfurt at some elements of the IMF’s stance in the eurozone sovereign debt crisis, where the Fund has taken on its own lending and acted as a member of the “troika” of IMF, ECB and European Commission officials advising on bailouts.

“By taking on excessive risks, the IMF would gradually transform from a liquidity-providing mechanism into a lending institution,” the bank says on the first page of its 15-page discussion. “Such a transformation would neither accord with the legal and institutional provisions of the IMF agreement, nor with the fund’s financing mechanism or its risk control functions.” 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

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

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ECB cut likely
Next week’s two key events are the Bank of England’s and the European Central Bank’s monetary policy votes. Expect both central banks to act. 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

Inflation report hearing/ financial stability presser Read more

Claire Jones

Fascinated by the Target2 debate, but your obsession hasn’t quite reached the levels where you’re willing to keep a beady eye fixed on all of the seventeen national central banks’ balance sheets?

Help is at hand in the form of this handy graphic and Excel file (last updated yesterday) pulled together by a team at Institute of Empirical Economic Research at the University of Osnabrück in Germany (hat tip to David Marsh at OMFIF for the link): Read more