• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Central banks in focus

0
  • by James Bevan
  • in James Bevan
  • — 3 Jul, 2013

jb-banner

Central bank announcements and policies are important to markets and in the US, Fed officials have sought to clarify last week’s FOMC statement and comments made by Chairman Bernanke at the FOMC press conference. Notably, NY Fed President Dudley struck a dovish tone, emphasizing that “the labor market still cannot be regarded as healthy” and highlighted that QE may persist at high levels if FOMC forecasts fall short of expectations (and as he put it, “this is what has happened in recent years”).

Meanwhile the People’s Bank of China (PBoC, China’s central bank) issued a statement on June 25th confirming the injection of liquidity into some financial institutions with the accompanying statement that it expects “the spike of interbank rate and liquidity tightness to ease gradually.” The period of “teaching them a lesson” seems to be over, with the PBoC having spelled out its requirements for commercial banks involving promotion of liquidity and asset -liability management. The central bank has also said that commercial banks should prudently avoid irrational behaviour, with large-sized commercial banks helping with market stability. The quid pro quo for financial institutions following prudent credit policy to support real economy and showing stable loan and credit growth is that the central bank will provide liquidity support in the case of temporary shortage.

Looking forward to next week, the ECB meet and their press conference will be carefully scrutinized for its degree of ‘dovishness’. While improving data, especially in the form of Purchasing Manager surveys suggest that no policy easing is warranted, the ECB is still expected to s tress a relatively dovish stance, in part because in comparison with the US, Euroland has only started to stabilize recently and at very subdued levels, and the ECB is not overly bullish on growth prospects, and in part because the ECB is likely to want to counter its June press conference.  The latter was perceived  as  being  on  the more  hawkish side,  with  the market  preferring  to focus  on Mr Draghi’s comments on improving survey data, rather than on the fact that the ECB continued to keep the door open to the possibility of a negative deposit rate.

The briefings provided by ECB members in advance of their meeting seem to reflect an appetite to distance the ECB from what was last week’s perceived stance of the Fed on quantitative easing, and whilst the ECB is widely expected to acknowledge that recent data, especially in the form of the PMIs, have improved, it is also expected both to continue to stress that the risk to economic growth in Europe remains to the downside and to point to the possibility of negative rates if economic activity falls short of the ECB’s subdued projection path.

It may be a challenge for the ECB to convince markets that policy will stay accommodative, but this could be done by introducing forward guidance for interest rates. The ECB has already introduced forward guidance on liquidity with the ECB deciding in May to promise unlimited, fixed-rate funding for as long as needed and at least for one year. The ECB’s low inflation forecast, which at 1.3% is well below its price stability objective, provides ample scope for forward guidance on rates also. Since price stability is the ECB’s mandate, forward guidance on rates needs to be associated to the price level, and providing LTROs  at a fixed rate rather than at the current rate, which is indexed to the average future path of the re-financing rate, could make this forward guidance more explicit. The ECB might shy away from this sort of commitment but we can expect the ECB to stress that monetary policy will remain very easy for quite some time yet.

With the Bank of England, their meeting and announcement on Thursday will be the first with Mark Carney as governor. Given that he will have only officially started on Monday, it looks too early to expect any significant announcement but a move to provide forward guidance looks to be a significant possibility in August or September, and we will watch the August Inflation Report.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla

Share

You may also like...

  • Draghi commits to preserving euro Draghi commits to preserving euro 31 Jul, 2012
  • European banking sector ill-equipped to weather downturn European banking sector ill-equipped to weather downturn 7 Dec, 2011
  • What’s behind the fall in inflation? What’s behind the fall in inflation? 1 Oct, 2014
  • Positive thinking on Euroland Positive thinking on Euroland 29 Nov, 2012

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 2 days ago

    FDs’ Summit experts defend councils as MPs label property investment ‘risky’: As Room151’s FDs’ Summit conference explores local government’s investment in commercial property MPs once again lable it a “significant risk to government”. Once again MPs… dlvr.it/Rr7lZx pic.twitter.com/jPvcZjDAS4

    Room151 3 days ago

    Global macro outlook: Virus versus vaccine: Sponsored article: Salman Ahmed argues monetary policy, a global vaccine rollout and fiscal stimulus are likely to put “upward pressure” on bond yields. Much like the latter half of 2020,[...] dlvr.it/Rr60nt pic.twitter.com/qsymBWmKmV

    Room151 3 days ago

    ‘Chasing yield’ not the best strategy as negative rates loom: Recent speculation that the UK may be heading toward negative interest rates prompts questions for treasury officers managing local authority funds at LATIF. Speculation is rife that the UK… dlvr.it/Rr3Mrj pic.twitter.com/wtxYAB20PO

    Room151 6 days ago

    Will new public procurement rules offer the best commercial results?: The government has issued a green paper on reforming procurement rules. Helen Randall and Rebecca Rees examine the proposals and argue they may not go far enough. The Cabinet… dlvr.it/Rqtw6T pic.twitter.com/9GiVTkL08U

    Room151 1 week ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 1 week ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 2 weeks ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 2 weeks ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 2 weeks ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 2 weeks ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 2 weeks ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 2 weeks ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 2 weeks ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 2 weeks ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 2 weeks ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 1 month ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

    Room151 1 month ago

    Room151’s top stories from a momentous year: 2020 was the year in which local government grappled with Covid-19, funding strains, controversy over borrowing rules and the threat of financial collapse. It has been an exhausting and historic[...] dlvr.it/RnlpZg pic.twitter.com/g3myNyox6J

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story To boldly go…
  • Next story Cheshire West and Chester’s Laurence Ainsworth on Community Budgets

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK