MacroScope

Central bank guides

By Mike Peacock
July 17, 2013

The Bank of England will publish the minutes of Mark Carney’s first policy meeting earlier this month which will pored over for signs of how the debate about forward guidance – it’s all the rage in the central banking world now – went, and whether that may herald more money printing or act as a proxy for looser policy.

Carney’s colleague, Paul Fisher, indulged in his own form of guidance yesterday, telling a parliamentary committee that discussions within the Bank were focused on how to give a steer about future policy moves and whether to inject more stimulus, not whether it should start to be withdrawn as the Federal Reserve has signalled it may do before the year-end.

Fisher is one of the three of nine members of the Monetary Policy Committee who has been voting to print more money in recent months, but it was an interesting comment nonetheless. Unemployment data today will give the latest guide to the state of recovery while the independent Office for Budget Responsibility will publish its fiscal sustainability report.

Carney will deliver a plan to the government next month on how to give markets and Britons more certainty about future rate moves with the likelihood that, like the Fed, it will be tied to unemployment or growth targets rather than a definite timeline.

For the markets, Ben Bernanke will eclipse Carney when the Fed chairman testifies to Congress later. European markets are likely to be wading through treacle beforehand.

There’s no shortage of action in the euro zone either.

Spain’s opposition Socialists are threatening a symbolic vote of no-confidence against Prime Minister Mariano Rajoy if he refuses to appear before parliament to answer questions about a deepening scandal over party financing.

Rajoy has a comfortable majority so would survive, and his opponents are not yet in a position to threaten him. But his former party treasurer, who has claimed he made 90,000 euros cash payments to Rajoy in the past, has hinted he has evidence that could implicate the premier and others in crimes.

Italian Prime Minister Enrico Letta is in London for talks with David Cameron. His fractious government is struggling to agree on an economic reform package with the centre-right still demanding the abolition of a housing tax which would put a hole in the public finances. Last night, Letta warned of a “huge risk” of Britain leaving the European Union and vowed to work to reduce that danger.

Greece’s parliament will vote on reforms Athens agreed with its EU and IMF lenders as a condition for more aid, including firing of thousands of public sector employees. Public and private sector unions will hold a rally outside the parliament to coincide with the vote. German Finance Minister Wolfgang Schaeuble is due in town the following day.

Portugal will sell up to 1.5 billion euros of short-term treasury bills. Borrowing costs are likely to rise from previous auctions as Portugal’s parties try to reach a deal to resolve a political crisis that has pushed bond yields higher this month and threatened the country’s exit from an international bailout.

The parties have given themselves until Sunday to come up with a “national salvation pact” after the finance and foreign ministers resigned and the president rejected the prime minister’s plan to keep the government standing. Investors fear a prolonged crisis could force Lisbon to seek a second bailout rather than return to funding itself on the markets from next year, which was the plan.

The EU/IMF/ECB troika arrive in Nicosia to see how Cyprus is getting on meeting the terms of its 10 billion euros bailout which averted bankruptcy in March. The IMF coughed up a smaller part of the funds than previously for Cyprus and there are other indications that it is growing increasingly uncomfortable with the debt sustainability of various countries, notably Greece.

There was a startling comment from the EU’s Justice Commissioner last night, who said the troika should be dissolved and that in future the EU should act alone. Given Viviane Reding’s position, it’s hard to know whether she was talking with wider authorization or not.

Paris will announce plans to cut public spending by reducing tax rebates on biofuels, spending less on apprenticeship and cutting down family benefits in order to save 3 billion euros. A start, perhaps, but that is a salami slice for a country with the second highest public spending bill as a percentage of GDP of any OECD country.

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