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]

The ECB will most likely maintain their current policy stance come the next meeting on June 4th:

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

[HenryTo]

Axel Weber and others are still at loggerheads on what the ECB's next move should be:

http://www.bloomberg.com/apps/news?pid=20601068&sid=a0kX5WoNED.4&refer=economy

[HenryTo]

Axel Weber still in denial over the state of European finances and future economic growth:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEeXKEd16xDM&refer=home

The 60 billion Euro program to purchase covered bonds is definitely not enough - unless and until the bad debts in the Euro Zone's banking system are eliminated.

[HenryTo]

Note that the covered bond purchase is heavily skewed towards helping the German and the French market:

http://www.bloomberg.com/apps/news?pid=20601087&sid=arbowzvQs8CY&refer=home

[HenryTo]

The ECB capitulates and pledges to buy up to 60 billion Euros in covered bonds. This was definitely not expected among the major central banking analysts:

http://www.bloomberg.com/apps/news?pid=20601087&sid=abQX3ARv881s&refer=home

[HenryTo]

The ECB imposes a code of silence on the governing council:

http://www.bloomberg.com/apps/news?pid=20601068&sid=a6.oUwblqzKA&refer=home

[HenryTo]

European Central Bank Governing Council member Ewald Nowotny says the ECB may consider a quantitative easing policy:

http://www.bloomberg.com/apps/news?pid=20601087&sid=auyPBl80QSng&refer=home

[HenryTo]

ECB still undecided on what to do with is impending interest rate decision on May 7:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aFymctdm4oDA&refer=home

[diesel]

I just don't see quantitative easing coming out of the ECB. Lets be realistic they have been behind the curve ball for longer than I can remember!

IMO the result will be a dramatic bust which will butcher EU money supply sending the region into a deflationary depression. The result will be a stronger Euro due to the collapse in money supply which could very well subsequently lead to a capital flight out of the US given worries about the weaker dollar (assuming Bens helicopters keep the money supply juiced).

Call it the old worlds revenge.
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All cats are gray in the dark.

[HenryTo]

German economic think tanks applying the pressure on the ECB to adopt a quantitative easing policy:

http://www.guardian.co.uk/business/feedarticle/8469579

This is exactly what we need to avoid a dramatic bust in both Eastern and Western Europe.

[HenryTo]

It looks like the ECB is split - in particular on the decision of whether corporate debt should be purchased as part of an easing policy:

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

[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!