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

[iam802]

BOE’s Gieve Sees Risk of Decade-Long Depression Like Japan

http://www.bloomberg.com/apps/news?pid= ... refer=home

Feb. 20 (Bloomberg) -- Bank of England Deputy Governor John Gieve said policy makers are fighting to protect Britain from the threat of a decade-long depression similar to that suffered by Japan in the 1990s.

“That is a risk,” he said late yesterday during questions after a speech at the London School of Economics. “It’s a serious risk but we are addressing it. There’s a huge amount of policy easing in the pipeline. I don’t think it’s inevitable.”

The Bank of England this month cut the benchmark interest rate to 1 percent, the lowest ever, and sought permission from the government to buy securities to create money. Japanese policy makers hesitated in addressing a banking crisis in the 1990s and then struggled to revive economic growth and fight deflation in what is known as the “Lost Decade.”

Gieve said that the Bank of England will probably start so- called quantitative easing in the next few weeks. Policy makers are currently debating what the “effective” zero rate is after limiting this month’s reduction on concerns about banks’ willingness to lend at low rates of interest, he said.

The Bank of England began buying commercial paper a week ago when its asset purchase facility became operational using money allocated by the Treasury. It will release data today showing the value of transactions conducted so far.

“We don’t know how deep and prolonged this recession will be or how soon and how completely financial markets will recover,” he said in his prepared remarks. “So it is too early to reach settled conclusions on causes or cures.”

Last Speech

The speech was Gieve’s last as a policy maker at the U.K. central bank. He will leave his post at the end of the month after serving on the interest-rate setting Monetary Policy Committee since January 2006.

Gieve will take up a position at the Kennedy School of Government at Harvard University, LSE Director Howard Davies said. On the MPC, he will be replaced by Paul Fisher, who was previously the bank’s executive director of foreign exchange.

There are several lessons to be learned from the financial crisis, Gieve said. Targeting inflation may not be enough for policy makers to steer the economy.

“If inflation targeting by an independent central bank is an essential foundation of policy, it is pretty clearly not sufficient on its own,” he said. “Having a large arsenal of policy instruments, which vary in their point of influence, provides some welcome flexibility.”

‘Cautious Skepticism’

Policy makers must “be willing to back their judgments, whether in identifying asset bubbles or identifying firms or markets which threaten financial stability, and to take preemptive action,” Gieve said. “Our default position should be one of cautious skepticism.”

Gieve said that authorities need the power to enforce “dynamic provisioning” for financial institutions to reduce the tendency of some accounting rules to inflate a boom and exacerbate a bust in the economic cycle. Authorities could also introduce restraints on lending terms, he said.

For now, the economy may slump further. Data on U.K. retail sales and mortgage repossessions will be released today. The next interest-rate decision is March 5.

[iam802]

If this can happen to UK...can this happen to US?

What will be the consequences ?
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Brown ‘Terribly Fragile’ After Bond Auction Flops

http://www.bloomberg.com/apps/news?pid= ... refer=home

March 26 (Bloomberg) -- The first failed British bond auction in more than seven years leaves Prime Minister Gordon Brown’s reputation for economic competence even more tarnished as he battles recession and a rising tide of voter anger.

Brown, who had the backing of 30 percent of the electorate in a ComRes Ltd. poll last week, must now cope with what amounts to a vote of no confidence by investors in his ability to end the recession. Bank of England Governor Mervyn King, his ally for much of the past decade, warned a day earlier that there’s no more money for further spending.

“The notion that Brown is leading us to the promised land is laughable,” said Ruth Lea, economic adviser to the Arbuthnot Banking Group Plc in Solihull, England. “He cannot get to grips with how other people see this country now, as the sick man of Europe.”

Chancellor of the Exchequer Alistair Darling brushed aside concerns about the gilt auction, noting that a sale of bonds today was fully covered.

“You always have to be careful about reading too much into one particular auction,” Darling said in response to a question in Parliament in London today.

Record on Economy

Brown, 58, succeeded Tony Blair in 2007 on the strength of his record as finance minister during a decade of uninterrupted growth. That reputation is deserting him little more than a year before he must call an election, Brown’s first as leader and the Labour Party’s third in office.

The Treasury yesterday tried to sell 1.75 billion pounds ($2.6 billion) of 40-year gilts and got 1.63 billion pounds of bids, a sign that investors are reluctant to finance his record borrowing.

“Brown’s strategy now looks terribly fragile,” said Mark Wickham-Jones, a professor of politics at Bristol University. “His situation is economically extremely uncertain, politically risky and this auction again highlights how we are now in un- chartered territory.”

The auction failure couldn’t have come at a worse time for Brown, who set off on a five-day tour this week to win support for his economic-reform plans before a summit of leaders from the Group of 20 nations he’s hosting in London on April 2. He’s in Brasilia today and due to visit Chile after speaking in New York yesterday.

German Chancellor Angela Merkel has resisted Brown’s push for a new fiscal stimulus, saying her country already has committed to a boost worth 4.7 percent of gross domestic product.

German Opposition

“If we want to increase the effectiveness of such a stimulus package, then we first have to implement it, so to speak, and not to begin speaking of the next measure when the first one isn’t through,” Merkel told after meeting Brown in London on March 14. “We’ve already taken a huge step.”

The government says the G-20 will focus on stabilizing financial markets, reforming global financial institutions and helping people get through the recession. Brown wants them to agree on a fiscal stimulus to support growth, something King warned might not be affordable.


(802: G20 meeting is next week. This is going to be crucial.)



“Given how big these deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits,” King said in Parliament on March 24.

Brown’s Position

Brown’s spokesman Tom Hoskin said yesterday the prime minister wasn’t troubled by the auction failure. “There have been other auctions that have been uncovered in other countries,” he told reporters in London. “The underlying strength of the market in gilts is there.”

While issues of inflation-protected bonds went unfilled in 2002 and 1999, it’s the first failure of non-indexed bonds since 1995.

For his part, Brown didn’t mention the gilts auction during an appearance in New York and said he had “consensus, not a disagreement” with King.

Britain’s economic outlook is looking increasingly gloomy. The economy will shrink 2.8 percent this year, the biggest contraction among the Group of Seven nations, according to the International Monetary Fund. That compares with declines of 2.6 percent in Japan, 2 percent in the euro area, 1.6 percent in the U.S. and 1.2 percent in Canada.

The European Commission this week forecast Britain’s budget deficit would touch 9.6 percent of gross domestic product in the year ending March 2010, triple the EU limit.

John Major Analogy

When the 1995 gilt auction failed, investors were concerned that John Major’s Conservative government was on course to lose the general election and was about to announce tax cuts it couldn’t afford. Now, it’s gild yields that are to blame, according to Robert Stheeman, the head of the Debt Management Office, which manages sales of the securities for the Treasury.

The Bank of England cut its benchmark lending rate to 0.5 percent this month, the lowest ever, and started a program to boost the money supply.

“Yields at these levels are not at all attractive,” Stheeman said yesterday. Opposition lawmakers seized on the comments from Stheeman and King to suggest Brown’s reputation for smooth handling of the economy is in tatters.

The Conservatives said the auction was the latest signal of a collapse in confidence in the government. “The Brown rescue model is broken,” said Michael Fallon, an opposition Conservative lawmaker and deputy chairman of Parliament’s Treasury Committee. “The governor made a hole in it, now it looks as if sterling can’t stand it.”

Outside Parliament, government rescues of Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc have failed to shore up confidence.

House-Price Collapse

House prices have fallen 20.6 percent since peaking at 186,044 pounds in October 2007 and stood at 147,746 pounds in February, according to Nationwide Building Society. Banks approved 31,000 mortgages in January, less than a third of the monthly average in 2007, Bank of England data show.

A British Chambers of Commerce survey in February found nine out of 10 respondents unaware their banks were offering access to government-support programs. A 1 billion pound program to guarantee mortgage-interest payments for homeowners who suffer a drop in income, announced in December, has yet to materialize.

“Businesses are still experiencing difficulties accessing credit,” said John Cridland, deputy director-general of the Confederation of British Industry, the biggest business lobby group. “The government has taken the right steps to get credit moving, but this has yet to feed through.”

Brown has trailed the Conservatives in every poll since January 2008. Labour had the support of 30 percent of voters compared with 41 percent for the opposition, according to the ComRes poll conducted March 18 and March 19. No margin of error was given.

[winston]

Looks like interest rates may have to go..

Wonder when the currency speculators will smell the blood ?

[winston]

ECB cuts rate to record low

The European Central Bank cut its benchmark interest rate by 25 basis points to a new record low of 1 percent as expected.

But the ECB kept its overnight deposit rate, which is acting as a floor for money markets, at 0.25 percent, narrowing the gap between its policy rates instead of cutting the lowest of these to zero.

The ECB also cut its marginal lending rate by 50 basis points to 1.75 percent, from 2.25 percent, keeping the rate corridor symmetrical.

The new rates will take effect on May 13.

REUTERS

[millionairemind]

ECB fears bank crisis in 2010 as recession drags on
The European Central Bank is paying close attention to mounting difficulties at 25 banks deemed crucial to the health of the eurozone financial system, fearing another wave of bank turmoil next year if the recession drags on.
http://www.telegraph.co.uk/finance/econ ... gs-on.html

[millionairemind]

ECB warning on banks rattles global markets
The European Central Bank has given its starkest warning to date on growing strains in the eurozone credit markets.

By Ambrose Evans-Pritchard
Published: 9:11PM BST 15 Jun 2009

It said it is expecting fresh bank writedowns to hit $283bn (£173bn) by the end of next year.

"Policy-makers and market participants will have to be especially alert in the period ahead. The credit cycle has not yet reached a trough," said the ECB's Financial Stability Report.
http://www.telegraph.co.uk/finance/news ... rkets.html

[millionairemind]

June 21, 2009
Trichet warns of uncertainties
PARIS - EUROPEAN Central Bank president Jean-Claude Trichet warned on Sunday against putting too much faith in forecasts of an economic recovery next year.

'We should see a return to positive growth during next year,' he told Europe 1 radio. 'This is what I have been telling everyone.'

But he added that 'it would be a mistake to believe that this is a foregone conclusion: There are uncertainties, risks.'

Mr Trichet added that much depended on consumer and investor confidence and on government handling of measures that have been approved to combat the recession hitting Europe.

Most countries in the 27-nation European Union are predicting a turnaround in the first quarter of 2010. -- AFP

[millionairemind]

No green shoots here??

July 9, 2009
BoE to ask for $59b

LONDON - THE Bank of England (BoE) is expected to ask the British government for the authority to pump another 25 billion pounds (S$59 billion) into the financial system at the end of its two-day monthly meeting on Thursday.

The central bank's monetary policy committee is also expected to keep interest rates unchanged at a record low 0.5 per cent.

The bank, after what many thought was a slow response to the financial crisis and the ensuing recession, has been very aggressive since October, cutting interest rates in quick-fire succession from 4.5 per cent to 0.5 per cent in March and instigating so-called quantitative easing (QE).

Under the program, the bank has committed to buying up to 125 billion pounds of assets, such as government and corporate bonds from financial institutions in the hope they will start lending their new money to households and consumers.

The policy is also designed to prevent a dangerous spiral of falling prices from emerging by increasing the amount of money circulating in the economy - though inflation in the year to May stood at 2.2 per cent, above the Bank's 2 per cent target. The inflation rate is expected to drop sharply in coming months amid falling commodity prices and a deeper than expected recession.

The BOE is expected to confirm on Thursday that it has nearly exhausted the 125 billion pounds it was first allocated in March and is looking to raise the ceiling to 150 billion pounds - the maximum level currently authorised by Britain's finance chief Alistair Darling.

Analysts said the likelihood of an expansion in the money boosting measures has increased in recent weeks as inflationary pressures in the economy appear to have eased and figures showed that the British economy contracted by 2.4 per cent in the first quarter of 2009 from the previous three month period, way more than the previous estimate of 1.9 per cent.

'Lower GDP estimates, disappointing monetary data and a rising pound provide good fundamental reasons for the committee to sanction more QE, but there is also a tactical reason,' said Mr Philip Shaw, chief UK economist at Investec Securities.

Mr Shaw warned of an 'unnecessary disruption to the process' if the BOE waited until August to get its hands on the additional 25 billion pounds because at the current rate of purchases, it looks like the 125 billion pounds initially sanctioned will have been used up by the end of July. 'From the point of view of continuity, it might be beneficial to act now,' Mr Shaw said.

The markets will also be interested to see if the nine-member rate-setting panel requests a higher limit from Mr Darling so it can have more firepower just in case the British economy takes a turn for the worse or prices begin to fall. -- AP

[winston]

Sin$60b peanuts lah. Not a "Shock &n Awe" number to be able to change sentiments and to instill confidence ..

[kennynah]

quantitative easing

so..recently, i heard that this QE is nothing more than a sophisticated term to mean "printing fiat money out of thin air"...

BoE is also highly expected to keep rates as it is... it is quite inconceivable that they would increase rate at this time... so, no increase, is a no event...if they even move 25 basis... m sure market will gyrate...eg...usd will tank against gbp... metals will peo...