Counterparties: Central banks’ uncanny timing
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How’s this for uncanny timing? Central banks in Europe, the UK and China all decided to actually do something about the slowing global economy today. As the NYT notes, these moves somewhat magically happened in the span of an hour.
ECB President Mario Draghi denied any sort of central banking master plan: “On coordination, no, there wasn’t any”. Still, the European Central Bank cut rates to a historic low of 0.75% from 1%; China cut its main interest rate by 31 basis points, to 6%; and the Bank of England announced it would buy $78 billion worth of assets. (David Keohane has the respective releases here.)
The ECB’s move gathered the most attention, if only because Spanish and Italian bonds got trounced after Draghi’s speech announcing the rate move today. Economist Dario Perkins saw the ECB’s move as mostly about optics: “It appears some ECB members wanted this trivial move to be a reward for politicians ‘doing the right thing’ at their recent summit. If that’s the case, it’s a silly, highly political way to run monetary policy.” The WSJ‘s Charles Forelle summed it up this way:
@CharlesForelle: ECB summary: Plenty of monetary-policy easing, no hint of philosophical easing. The ball is still in Germany’s court
Sober Look notes that, at least from a balance-sheet perspective, the ECB’s approach has been shifting: In just over a year, the ECB’s lending to banks has doubled as a percentage of its balance sheet.
But the most pressing issue is that the ECB’s latest actions, which also included cutting the deposit rate to zero, are well short of what’s needed. Given the worries of a global manufacturing slowdown, central banks may quickly realize that Europe’s platitudes about growth pacts and a still quite undefined banking union are not enough. Here’s Nouriel Roubini:
@Nouriel: Trifecta today of monetary easing / policy rate cuts: PBOC, BOE & now ECB. A clear sign of how weak global growth is & how worried CBs are
– Ryan McCarthy
On to today’s links: