Europe - ECB & BOE 01 (May 08 - Nov 11)

[iam802]

So, I think interest rates will be going up soon...

--

CPI inflation remained well above the 2% target but the recent weakness in underlying output growth persisted. The recovery in the world economy was maintained and is expected to support growth in the United Kingdom, as should the considerable stimulus from monetary policy and the current level of sterling. But the continuing squeeze on households’ real incomes is likely to weigh on demand, especially over the next year or so. Further ahead, the chances of four-quarter GDP growth being either above or below its historical average rate are judged to be roughly balanced.

CPI inflation is likely to rise further this year and is more likely than not to remain above the target throughout 2012. The near-term profile is markedly higher than in February, largely reflecting renewed increases in energy prices. Inflation is likely to fall through 2012 into 2013 as the impact of external price pressures and the increase in VAT dissipates and some downward pressure from a margin of spare capacity persists. But the timing and extent of that decline in inflation are both highly uncertain. Under the assumptions that Bank Rate moves in line with market interest rates and the stock of purchased assets financed by the issuance of central bank reserves remains at £200 billion, the chances of inflation being above or below the target in the medium term are judged to be about the same.

The full report is available here : Inflation Report, May 2011

[kennynah]

mervyn king of BoE came on tv again yesterday reiterating the rhetoric that inflation may be 5% very soon...

but he fell short of saying IR will rise soon...

today, govt is already selling bonds to public yielding 5.3% annually. public can buy up to gbp15,000 and this debenture is for 5 years.

[winston]

ECB Has €444 Billion PIIGS Exposure, A 4.25% Drop In Asset Values Would Bankrupt European Central Bank
by Tyler Durden

As if insolvent European private banks were not enough to worry about (and with banking assets of 461 percent of GDP in the UK, 178 percent in Germany, and 820 percent in Switzerland, there is more than enough to worry about), a new study by Open Europe has found that at the heart of the insolvency argument is none other than the only hedge fund that is even worse capitalized than the US Federal Reserve: the European Central Bank.

"With Greece forced to seek a second bail-out to avoid bankruptcy, Open Europe has today published a briefing cataloguing how the eurozone crisis could drive the European Central Bank itself into insolvency, with taxpayers likely to pick up a big chunk of the bill.

The role of the ECB in the ongoing eurozone and banking crisis has been significantly understated. By propping up struggling eurozone governments and providing cheap credit to ailing banks, the ECB has put billions worth of risky assets on its books.

We estimate that the ECB has exposure to struggling eurozone economies (the so-called PIIGS) of around €444bn – an amount roughly equivalent to the GDP of Finland and Austria combined. Of this, around €190bn is exposure to the Greek state and Greek banks.

Should the ECB see the value of its assets fall by just 4.25%, which is no longer a remote risk, its entire capital base would be wiped out." It seems that in crafting "prudent" capitalization ratios courtesy of Basel 1 through infinity, the global NWO regulators totally let the ECB slip through the cracks.

The finding also confirms what we have been saying all along: there is no way that any form of voluntary or involuntary phase transition that will require the ECB to mark down assets that it has on its books at par (yet are worth 50 cents on the dollar) can ever occur: such an event would result in the immediate insolvency of the European lender of first and last resort, and, in turn, the unravelling of the Eurozone.

http://www.zerohedge.com/article/ecb-ha ... central-ba?

[winston]

So are you afraid yet ?

European Central Bank President Jean-Claude Trichet said the warning lights are flashing red on the euro zone's debt crisis.

[winston]

ECB set to hike rates, troubled economies struggle by William Ickes

The European Central Bank is widely expected to announce its second interest rate increase since April on Thursday but suddenly finds itself on a collision course with credit rating agencies.

The ECB has flagged a rise in its benchmark lending rate, probably to 1.50 percent, owing to dogged eurozone inflation currently running at 2.7 percent.

In London, the Bank of England will keep its key interest rate at a record low 0.50 percent and maintain the status quo into next year due to Britain's flagging recovery, economists said.

Markets are interested in how much higher the ECB's rate might go this year but since Moody's slashed its rating on Portugal and Standard & Poor's warned a plan to help Greece might lead to a declaration of default, analysts are focused on how the central bank will handle the latest twist in the eurozone debt crisis.

The ECB says it cannot accept Greek bonds as collateral in loan operations if Greece defaults but unless the central bank is willing to risk demolishing the Greek financial sector, the ECB might be forced into an embarrassing compromise.

"The ECB's position could be challenged in the coming months," Goldman Sachs economist Natacha Valla noted.

Ernst & Young senior economist Marie Diron said "both the ECB and ratings agencies are moving to meet somewhere in the middle."

Source: Reuters

[winston]

As expected, ECB increased interest rates by 0.25%.

[kennynah]

BoE held rates instead at 0.5% ?

[winston]

BoE keeps key rate on hold, no rise seen till 2012 by Christina Fincher

LONDON (Reuters) - The Bank of England kept its key interest rate at a record low on Thursday, as expected, and is likely to stay put for the rest of the year as the economy struggles to gain momentum.

A stream of disappointing economic data had meant the no-change verdict was a foregone conclusion and there was no market reaction.

While the European Central Bank looks certain to raise rates later this session, investors are not pricing in a UK rate hike until 2012.

"The decision for no change was a sure fire bet," said Lee Hopley of the Engineering Employers' Federation.

UK interest rates have stood at 0.5 percent since March 2009, when a deep recession and the threat of deflation prompted central banks around the world to slash rates to record lows.

Since then, inflation in Britain has soared to more than double the central bank's 2 percent target, but the BoE has been reluctant to tighten monetary policy at a time when the economy is already feeling the pain of the government's fiscal tightening.

BoE Governor Mervyn King told lawmakers last month he would only raise rates "in the context of a much stronger economy with unemployment falling rather than rising."

Joost Beaumont at ABN Amro said he expected the BoE to hold fire until February.

"By then most of this year's fiscal consolidation measures have been implemented, while at the same time the economy should have regained momentum," he said.

Surveys of manufacturing, construction and services this week suggest the economy expanded by just 0.3 percent from April to June, after showing no growth at all over the previous six months.

And even though inflation looks set to climb to 5 percent in the coming months, worries about persistently weak growth have even led some members of the Monetary Policy Committee to mull the case for additional asset purchases to pump money into the economy.

In June, two of the BoE's nine policymakers voted for a monetary tightening, one for more stimulus and the remaining six for the status quo. A breakdown of Thursday's vote will be published in two weeks' time.

Source: Reuters US Online Report Business News

[winston]

The sell-off last night supposedly started after some comments by Trichet.

I didn't knoiw that the machines atr that advance that they can understand speeches now

i-Robot coming ...

[winston]

ECB says will "actively implement" bond-buying by Paul Carrel

FRANKFURT (Reuters) - The European Central Bank said on Sunday it would "actively implement" its controversial bond-buying programme to fight the euro zone's debt crisis, signaling it will buy Spanish and Italian government bonds to halt financial market contagion.

After a rare Sunday night conference call, the ECB welcomed announcements by Italy and Spain of new deficit cutting measures and economic reforms as well as a Franco-German pledge that the euro zone's rescue fund will take responsibility for bond-buying once it is operational, probably in October.

"It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme," an ECB statement said.

The statement marked a watershed in the ECB's fire-fighting efforts after modest bond-buying last week failed to stem contagion to the currency bloc's larger economies.

It did not explicitly say that effort would now include buying Spanish and Italian paper, but the fact that last week's purchases were confined to Irish and Portuguese paper drove Italian and Spanish 10-year paper to a 14-year high.

Germany and France earlier said in a joint statement that the EFSF bailout fund would soon be able to buy government bonds of debt strugglers Italy, Spain, Greece, Portugal and Ireland.

ECB President Jean-Claude Trichet called the Sunday meeting of the policy-setting Governing Council to decide on buying Italian paper after Prime Minister Silvio Berlusconi announced new measures on Friday to speed up deficit reduction and hasten economic reform.

http://www.newsmeat.com/news/meat.php?a ... &buid=3281