German court’s “No, but” may undermine ECB’s OMT 7 Feb 2014 The constitutional court strongly implied that the central bank’s bond-buying programme is outside its remit. OMT defenders will worry, but there are hints that the higher European court can make things right. Still, the decision will reinforce German doubts about the ECB.
Hugo Dixon: QE is the way for the ECB to go 5 Feb 2014 With euro zone inflation falling to 0.7 percent and trouble in emerging markets, the risks of deflation are up. The ECB says inflation expectations remain anchored at near 2 percent. But if the anchor slips, deflation fears could be self-fulfilling. QE is the most effective tool.
ECB can live with near-deflation 31 Jan 2014 After a drop in January, euro zone inflation has been below 1 pct for four months. The region’s internal devaluations are a durable drag. But the central bank has run out of easy anti-deflation policies. As the zone returns to growth, the ECB can get away with doing nothing.
Emerging vacuum a harbinger of global downdraught 31 Jan 2014 Brazil’s central bank president complains that rising developed country rates are like a “vacuum cleaner.” But tighter global money is needed. Emerging economies must adapt and improve their own fundamentals. Their woes are a harbinger of the developed market pain to come.
Markets give central bankers lessons in humility 30 Jan 2014 Monetary authorities should have already been chastened by the doubtful results of extreme policies in developed economies. Now they are learning how hard it is to switch direction. And emerging markets are showing that no policy rate is right when the economy is wrong.
Yellen’s unanimous Fed welcome may not last 29 Jan 2014 At Bernanke’s final FOMC meeting, all voters were for once agreed on cutting QE by another $10 bln to $65 bln a month. Despite emerging-market volatility, the U.S. economy seems to be normalizing fast. Consensus may again become harder to forge if the Fed has to catch up.
EM rate hikes aren’t enough to scare FX traders 29 Jan 2014 Turkey’s hefty rate rise gave the lira only fleeting respite. Traders scoffed at a smaller South African rate hike. Euro zone bond vigilantes folded at the ECB’s commitment to preserve the euro. But FX traders look set to test central banks’ capacity to defend EM currencies.
Carney deals intellectual blow to Scots’ secession 29 Jan 2014 The governor of the Bank of England studiously avoided criticising the idea of Scottish independence in his Edinburgh speech. But he said currency unions need watertight fiscal rules to work properly. As the euro zone is finding, that implies more political union - not less.
Turkish central bank in “whatever it takes” moment 29 Jan 2014 The massive overnight hike in interest rates aims to end the lira’s free fall. It soothes concerns about the central bank’s independence and will reassure foreign investors. But it can only work if the government seizes the chance to tackle the economy’s real defects.
Guest view: The ECB is much too stodgy 29 Jan 2014 The central bank can bridge the muddle at the middle of the single currency - monetary union, fiscal divergence and weak national banks, a Princeton professor responds to Breakingviews. He says a more aggressive ECB on monetary policy and debt writedowns would protect the euro.
ECB might be the most effective big central bank 28 Jan 2014 The Frankfurt institution gets less respect than the Federal Reserve, and trails both the Fed and the Bank of Japan in asset purchases. But the ECB has successfully pushed for reforms that really help the economy. Next step: find low-pain ways to write down sovereign debts.
Market contagion argues for central bank caution 27 Jan 2014 Trouble in a few emerging market hot spots has turned into a wider rout. Investors began the year talking of a return to more discriminating judgments, but quickly relapsed into old “risk on-risk off” trading ways. Wise central bankers will tighten policy very slowly.
Markets could be their own worst enemy in fear binge 27 Jan 2014 A predictable Argentine crisis and an expected Chinese slowdown triggered panic selling in lower quality assets. As yet, it’s just catchup with imperfect reality. But if investors don’t calm down - and central banks stay still - markets could spark the crisis they fear most.
Hugo Dixon: Bernanke deserves 6 out of 10 27 Jan 2014 The retiring Fed chairman failed to predict the financial crisis and was initially slow to react when it hit. But after Lehman Brothers went bust, he pulled out the stops to save the financial system and pep up the U.S. economy. On balance, the rest of the world can be grateful.
Further policy reversal is Argentina’s best option 24 Jan 2014 Cristina Fernandez has eased FX curbs. That’s a step toward tackling the peso plunge. But on official statistics, there shouldn’t be a currency problem. Argentina needs more reform, spending cuts and an independent central bank – plus better data. That means a whole new mindset.
UK’s guidance flop means markets must think again 24 Jan 2014 Mark Carney signalled the early end of a policy that was designed to keep market rates down but actually pushed them up. The shift after a mere five months is embarrassing for the central bank governor, but makes sense. Investors have become too confident that rates will rise soon.
Swiss housing bubble-poppers are bolder than UK’s 23 Jan 2014 Switzerland’s central bank has intervened for the second time in a year to check house price inflation. Mortgage stocks are growing quicker than in the UK. But the Swiss regulator’s willingness to deploy macro-prudential tools is at odds with British inactivity.
Turkey’s crisis is beyond central bank’s control 23 Jan 2014 After refusing to hike rates, the central bank is intervening in forex markets to try to stem the lira’s freefall. But Turkey’s problems require more drastic action. The economy’s structural faults and the ruling party’s erratic behaviour are at the heart of investors’ worries.
Bank of England gets ready to forget unemployment 22 Jan 2014 The market takes the UK central bank at its 2013 word - tumbling UK unemployment will fairly soon lead to higher rates. Sterling and gilt yields are up. But the BoE’s minutes suggest joblessness was last year’s story. As long as inflation stays low, rates will too.
Money market starts to tell ECB to ease 20 Jan 2014 There have been some sudden odd jumps in rates in the euro zone short-term interbank market. A few scattered spikes won’t bother the central bank, but too much tension would boost borrowing costs in the real economy. To counter that, the ECB would be tempted to loosen policy.