MacroScope

ECB deflation risk denial has echoes of 2009

Euro zone policymakers like to talk. They often contradict each other at separate speaking engagements on the same day. But they have struck a chorus in recent weeks, asserting that deflation is not a threat.

Members of the ECB Governing Council have been particularly vocal, insisting they will not have to alter policy to counter falling prices.

Jan 9: Mario Draghi says the euro zone may “experience a prolonged period of low inflation” — steering clear of even mentioning the word deflation.

Jan 21: ECB’s Ewald Nowotny says “we neither see inflation nor do we see deflation in the euro zone”.

Jan 23: Draghi says “the risks of deflation or inflation are limited at this point in time.”

Mervyn King gets a “B” grade from economists… for the time being

As is now customary for retiring central bank chiefs, Bank of England Governor Mervyn King has received a warm – but not a standing – ovation from economists for his time in charge.

But if there’s one thing the last few years have shown, it’s that the legacy of prominent central bankers can sour quickly after retirement.

King received a median 7 out of 10 score for his 10 years as Bank of England governor from 39 economists polled by Reuters this week.

Price stability key to ECB bond buys?

Price stability remains the only needle in the compass for the European Central Bank, even when it is buying government bonds, the 17-country bloc’s central bank strived to argue on Sunday.

ECB President Jean-Claude Trichet said, in the statement announcing extension of its bond-buying programme, that the decision was made to keep inflation at an acceptable level.

“This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area,” Trichet said.

Axel who? ECB gets tough without hardman Weber

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When it decided the time was right to crack down on inflation, the European Central Bank did so without the man who is often regarded as its toughest inflation hawk: Bundesbank chief Axel Weber.  The ECB took financial markets by surprise by announcing on Thursday it could raise rates as soon as April — a decision its policymakers reached without Weber even in the room.

The German, who has appeared isolated at times over the last year because of his staunch commitment to price stability above all else, was absent without leave and did not attend the meeting.

“He’s tied up today,” a spokesman for the Bundesbank said of Weber, who last month announced he would step down from the central bank a year before his term ended and that he was no longer a candidate to head the ECB when Trichet’s term expires in October. Weber said his hardline views were not well received by other decision makers.

The ECB’s exit strategy gets the austerity treatment

Trichet gives the ECB's exit strategy the austerity treatment

Trichet gives the ECB's exit strategy the austerity treatmentAs a top central banker you have to watch your words. Almost every one you utter is scrutinised by finanical markets for a cryptic hint on policy the way a jeweller studies a diamond. So when you chop out almost a quarter of the content of your main policy message, the likelihood is that you know you are playing with fire.
The ECB juggled the flames on Thursday, slashing 427 words — almost 25 percent –from its monthly policy statement. The leaner 1,388 word composition represented no change at all in the bank’s view of the world, stressed the bank’s President, Jean-Claude Trichet.
But the some of the stuff binned involved some of juiciest material, particularly all-important plans to remove crisis support. That section got reduced by almost 30 percent to a slender 62 words although the message stayed the same, something along the lines of: we will reel support in gradually and when markets are ready.
With central banks in other major advanced economies now turning back in the direction of stimulus, the ECB’s unwavering, albeit shorter, view of the exit route helped the euro break through the $1.40 barrier.
It just shows that austerity really is all the rage in much of the euro zone.

Diplomacy not needed for top ECB job, says Bundesbank boss

Axel Weber, head of Germany’s Bundesbank and a frontrunner to take over the leadership of the European Central Bank next year, thinks diplomacy is over-rated in central bankers.

TrichetWeberWeber normally avoids all comment on the tricky subject of choosing a successor to current ECB President Jean-Claude Trichet but with just over a year to go before the plum post comes up, could not resist making an ambit claim.

Asked by a television interviewer whether  he was enough of a diplomat to take over from Trichet given his public criticism of the ECB’s decision to buy government bonds in May, Weber said he thought diplomacy was an optional extra.

Has it really been three years?

European Central Bank Governing Council member and Cyprus Central Bank Governor Athanasios Orphanides addresses parliament in Nicosia, November 27, 2009. REUTERS/Andreas Manolis

European Central Bank Governing Council member and Cyprus Central Bank Governor Athanasios Orphanides addresses parliament in Nicosia, November 27, 2009. REUTERS/Andreas Manolis

It is three years to the day since the European Central Bank first threw unlimited amounts of cheap cash at banks in a bid to ease liquidity logjams, and at least one  of its 22 policymakers sees no reason to rush for the exit yet.

 ”We remain sensitive to the liquidity needs in the banking sector and, as we have been doing since the beginning of the crisis, we will continue to provide liquidity as necessary,” Cyprus central bank governor Athanasios Orphanides said in an interview with Reuters.

ECB’s Trichet ready for Bermuda shorts

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Jean-Claude Trichet, the head of the European Central Bank, was in a good mood on Thursday.

The 16-country bloc’s central bank is starting to see light at the end of the tunnel after a long, hard slog through the financial crisis and the resulting Great Recession, and this gives the policymakers a chance for some R&R.

“We are now … in a situation, which is obviously better than before,” Trichet said after the 16-country bloc’s central bank kept interest rates on hold at a record-low 1.0 percent. “Again, I don’t declare victory.”

Pass Jean-Claude Trichet a vuvuzela

Give European Central Bank President Jean-Claude Trichet a vuvuzela.
Having previously confessed ignorance on all things soccer the ECB chief finally appears to have been bitten by the World Cup bug.
He did a Ronaldo-style double step-over when asked who he would cheer for in Sunday’s final between Spain and the Netherlands but admitted he enjoyed Spain’s slick defeat of Germany the previous evening.
“The last match was beautiful I have to say,” Trichet enthused at the bank’s news conference.
The comments were greeted with laughter by the clutch of international journalists in the audience. Realising that he may have sounded a little too happy about Germany’s loss he quickly backpedalled.
“I don’t have any judgment on the result of the match. I said that it was a beautiful match obviously. And the two teams were very beautiful on the field.”
Germans called for Paul the now infamous “the oracle” octopus to be thrown on the BBQ after he predicted the defeat. Mr Trichet could be next in line. Then again there are economists who would argue that Spain needs ECB support at the moment.

ECB takes a turn to taciturnity

European Central Bank (ECB) President Jean-Claude Trichet attends a session at the World Economic Forum (WEF) in Davos January 26, 2008. REUTERS/Denis Balibouse

The European Central Bank’s normally loquacious policymakers have been struck dumb over the last month.

The ECB’s 22 rate-setters generated just 14 Reuters news stories in February, much lower than January’s total of 24 and the 27 stories I count in December.  Even the core Executive Board members have managed only four speeches between the six of them, compared to a flurry of 10 speeches and interviews in the previous two weeks after policymakers returned to work from their end-of-year break.

Even the U.S. Federal Reserve, playing two team members short with just 17 policymakers at the moment, has out-talked the ECB with a rough tally of 26 news stories generated so far this month, a 30 percent increase on January.