European Central Bank

[HenryTo]

Rumors swirling around that the governing council of the ECB has been holding emergency meetings:

http://www.forbes.com/markets/feeds/afx/2008/03/17/afx4779928.html

[HenryTo]

European Central Bank signals more easing - perhaps some kind of QE policy - going forward:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aVJdAh3BCa78&refer=home

[HenryTo]

The ECB signals further easing at its next meeting on April 2nd - more dovish than expected:

http://www.bloomberg.com/apps/news?pid=20601068&sid=aRv3i7c8hIJc&refer=home

[HenryTo]

The ECB finally wakes up to reality, but it may still be too little, too late. At the same time, the Bank of England disappoints with only a QE target of 75 billion pounds:
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European, British central banks cut half a point
Thursday March 5, 11:01 am ET
By George Frey and Pan Pylas, AP Business Writers
European, British central banks cut interest rates by a half percentage point to record lows

FRANKFURT (AP) -- The European Central Bank on Thursday cut its main interest rate by a half percentage point to 1.5 percent and hinted that further rate cuts were possible -- as well as a boost in the money supply to help the ailing euro-zone economy.

The rate cut by the Frankfurt-based bank followed a similar half-point reduction by the Bank of England, which took its benchmark rate to 0.5 percent.

Both banks are now at historic record lows and looking beyond interest rates for other ways to stimulate growth amid the world economic slowdown.

ECB President Jean-Claude Trichet said there was a "consensus" on the bank's governing council over the decision to cut and added that the bank could go farther, though he did not provide a clear sign another rate cut would be enacted next month.

"As far as the current rate, we did not decide ex-ante that this was the lowest rate we could attain," he said.

Following his comment, bond and currency markets priced in the possibility that the bank will be cutting rates again in the months ahead. The euro slid 1.2 percent to $1.2498, having fallen earlier to a low of $1.2479 -- its lowest level since late November.

"The prospect of further interest rate reductions is putting the euro under pressure," said Neil Mackinnon, chief economist at ECU Group.

Lower rates can work against a currency's exchange rate by lowering returns on interest-bearing investments denominated in that currency.

Trichet also gave one of his broadest hints yet that the European Central Bank may back a program to boost the money supply in the 16-country currency zone, which accounts for more than 15 percent of the world's gross domestic product.

"As far as further measures, I would only say that we are discussing and studying possible new nonstandard measures," said Trichet.

He stressed that this was not a "pre-commitment" on the bank's part.

Earlier, the Bank of England announced radical plans to inject 75 billion pounds into the banking system over the coming three months by buying assets, such as government securities and corporate bonds, and pay for them by crediting banks' reserve accounts -- effectively creating new money. The Bank of England is hoping that the monetary expansion will fuel increases in bank lending, which should help boost general economic activity.

One of the main difficulties for the European Central Bank is how it would select assets to buy. The bank can't buy government bonds, and even buying assets in one country might open it to accusations of favoritism.

Trichet painted a fairly bleak picture for the euro zone and its 330 million people, at least for this year, noting that the bank's staff are now projecting that economic output across the region will contract between 2.2 percent and 3.2 percent in 2009, much worse than previous predictions.

Over 2010, Trichet said the euro zone should "gradually recover," with economic activity and consumer spending in particular helped by lower prices for commodities such as oil.

Those lower commodity prices could actually mean that inflation in the euro zone will turn negative in the middle of this year before rising again, Trichet said.

"Inflation rates have decreased significantly and are now expected to be well below 2 percent in 2009 and 2010," he said.

The ECB has been criticized in many quarters for not cutting interest rates as aggressively as other central banks around the world, such as the Bank of England and the U.S. Federal Reserve, even though inflation is well below target and the economy is contracting at its sharpest rate since the single currency was born a decade. Rate cuts can be inflationary, but some policy makers are concerned about the opposite problem -- deflation, or a corrosive cycle of falling prices.

In the year to February, inflation in the euro zone stood at 1.2 percent, well below the European Central Bank's target of "close to, but below" 2 percent. Meanwhile, the euro zone economy contracted by 1.5 percent in the fourth quarter of 2008 from the previous three-month period.

Since October, the ECB has cut its benchmark rate by 2.75 percentage points, much less than the Bank of England's 4.5 percentage point cumulative reduction.

[rffrydr]

The ECB

Published: March 3 2009 09:20 | Last updated: March 3 2009 19:09


Remember when investors held their breath before every rate decision? They need not have turned blue after all – we now know that global central banks had as little clue about the economic outlook as the rest of us. Today many decisions are even less consequential now that benchmark rates are hovering close to zero. The European Central Bank, however, still carries on as if half a percentage point here or there really matters.

That is partly because it was extraordinarily late in cutting rates, worrying about inflation as the world imploded around its ears last summer. Four cuts down the road, the ECB meets again on Thursday with the main refinancing rate still at 2 per cent. Unfortunately, experience in the US suggests that pushing rates towards zero will do little to spur demand. But at least having 200 basis points up its sleeve means the ECB retains some capacity to shock.

Will it go boo? Most expect a chop of only half a percentage point, pretty much par for the course since the meltdown began, save a 125 basis point rush to the head last November. The ECB will no doubt feel that is an adequate response to probable downward revisions to eurozone growth and inflation forecasts by its own staff. Hitherto, these backroom economists have been in cloud cuckoo land, expecting a mere 0.5 per cent fall in output for this year. But given the horrible data of late, a revision to a fall of 2 per cent in growth is expected.

Alas, eurozone growth will probably fare even worse than that, leaving the ECB behind the curve yet again. So why not cut a full point, or more? Bundesbank president Axel Weber reckons rates should not fall below 1 per cent. After all, the rate at which banks lend to each other overnight is well below that anyway, partly reflecting the ECB’s emergency deposit facility.

Others, such as former Federal Reserve economist and governor of Cyprus’s central bank Athanasios Orphanides, say zero is nothing to be afraid of, provided the full kit of other monetary tools are employed. That view is gaining traction. Either way, 50bps no longer cuts it.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Trichet stating the obvious - where's the beef?

http://online.wsj.com/article/SB123538521116847221.html?mod=googlenews_wsj

[HenryTo]

The European Central Bank sheds more light on a potential "quantitative easing" policy going forward - and they may do that earlier than expected:

http://www.bloomberg.com/apps/news?pid=20601068&sid=aOKqlCN.kHk4&refer=home

[HenryTo]

So far, the ECB has been wrong in every turn - starting with its misguided policy of raising its policy rate by 25 basis points back in July of last year. For years, countries have criticized the large global imbalances - starting with the US consumer "spending beyond his means." We are now experiencing a severe correction of that - and no one is stepping up to "replace" the US consumer - be careful what you wish for.
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Trichet says no to zero rates as companies issue SOS
Fri Jan 16, 2009 11:27am EST

By Leika Kihara and Marcin Grajewski

TOKYO/BRUSSELS, Jan 16 (Reuters) - European Central Bank President Jean-Claude Trichet on Friday reiterated there was still room for further interest rate cuts but said the bank was not thinking about adopting a zero rate policy.

His comments came as Europe's top business group BusinessEurope warned that companies were being choked by a lack of financing and urged the central bank to do more to revive the region's paralysed economy.

The ECB cut rates by another half a percentage point to 2.0 percent on Thursday, its fourth cut in as many months and taking credit costs to the lowest in the euro zone's 10-year history.

(For story please click on [ID:nLF501185]).

In an interview with Japanese television, Trichet made it clear that rates could drop further but stressed the bank wanted to avoid cutting rates all the way to zero.

"To the question 'is 2 percent the lowest level that you will attain', I say no... If you ask me the question 'if you go to zero', I would say no," he told public broadcaster NHK.

BusinessEurope, which represents 20 million European companies, said the ECB needed to keep cutting rates and do more to restore the flow of financing to companies, perhaps by buying debt from companies to spare up cash and help fire the economy.

"We are in a very deep and unexpected crisis... In 2009 we are going to have really tough times," BusinessEurope President Ernest-Antoine told a news conference with the group's chief economist, Marc Stocker, saying that companies had seen "complete economic paralysis," since September.

In a speech in Madrid, ECB Executive Board member Jose Manuel Gonzalez-Paramo said money market tensions were still hampering the flow of funds around the world.

"Other important segments of the global financial system, such as the markets for equities, bonds and commodities, have also entered a period of considerable turbulence and stress," he said.



RENDEZVOUS

A Reuters poll [ECB/INT] showed that economists are near unanimous in expecting more cuts from the ECB. In total 61 out of the 64 forecast another 50 basis points in March after Trichet all but ruled out a cut in February.

"Our decision-making February meeting is only in three weeks, we do not consider that it would be an important rendezvous for policy making," Trichet said at the ECB's post rate decision news conference on Thursday.

"We will see in March what we will do. We will have substantial elements of new information."

Rates are now expected to bottom later this year at 1 percent, according to the poll of analysts.

That is still higher that the current rates of central banks in the United States, Japan and Switzerland which have all cut their policy rates close to zero, while the Bank of England is also seen heading that way.

"We would be very, very keen to avoid to be put in a situation which for us would not be appropriate, namely a liquidity trap." Trichet said, defining that as the point when rates were "very, very low".

"Near-term, the ECB's Governing Council seems poised to pause at the upcoming rate setting meeting. Part of the reasoning is that the ECB aims to avoid being trapped by nominal interest rates," said Dresdner Kleinwort analyst Rainer Guntermann.

"(That) does certainly not imply an end to the ECB's easing cycle...Whether the next move will be 50 basis points again or a smaller 25 basis points will ultimately be determined by the upcoming data, even though some individual comments from ECB Council members could produce some noise," he said.

Gonzalez-Paramo added that the ECB must also keep up its other efforts to help repair the financial system.

"As long as money markets remain dysfunctional, it is crucial for the Eurosystem to continue to provide as much liquidity as needed in order to ease tensions," he said.

[HenryTo]

The ECB cuts its policy rate by 50 basis points - and no-one came to the party:

http://www.nytimes.com/2009/01/16/business/16euro.html?hp

[HenryTo]

With the drop in crude oil prices this week, and with the severe erosion of business and consumer confidence (see below link) in the Euro Zone, I now expect the ECB to cut its policy rate by 50 basis points at its January 15th meeting - instead of the 25 basis points I discussed earlier:

http://www.bloomberg.com/apps/news?pid=20601068&sid=akDysWZ8y4aM&refer=home

[HenryTo]

Manufacturing activity falling all over the world. Not surprisingly, European manufacturing activity during December contracted by more than initially estimated. Look for the ECB to cut rates again at its January 15th meeting. Given the Bank's conservative roots, I expect the ECB to cut by only 25 basis points, however:

http://www.bloomberg.com/apps/news?pid=20601087&sid=ao1sJ6sJfMCw&refer=home

[HenryTo]

ECB looking at radical plans - including an idea for a clearing house to guarantee funding - to jump start interbank lending and to bring down credit spreads:

http://www.ft.com/cms/s/0/1de72bdc-cadf-11dd-87d7-000077b07658.html

[rffrydr]

IG Metal settled for 4%...don't know how they'll interpret that. But as the fiscal plan is the monetary plan they best get at it.

Interesting stat out of Lex: Eastern E (incl. Russia) is 90% China GDP value. There's never been a greater opportunity to more directly pull out of what we've fallen into so deeply. -- A nice fiscal match to the 30yr fixed (gov. match of down payment) and sustained sub-2 gasoline (Opec can't agree to cut) and an attack on the intelli-grid by our new prez and we've got something. Savings culture or no.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

November inflation numbers in the Euro Zone sinks to 2.1% (down from 3.2% in October). This calls for a sizable interest rate cut from the ECB next week. My sense is that we will see a 75 bps cut (if not more) from the ECB:

http://online.wsj.com/article/SB122788074598264023.html?mod=googlenews_wsj

[HenryTo]

As expected, the ECB cuts by 50 basis points. After the 150 basis point cut from the Bank of England, this was somewhat of an anti-climax. Moreover, the ECB's policy rate is now 25 basis points above that of the Bank of England. I expect another cut by the ECB later this year.

[rffrydr]

ECB does 300billion in asset swaps. Is this bullish?
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Today is the Tomorrow you worried about Yesterday!