Category Archives: Economy

Why leaning against the wind is the wrong monetary policy for Sweden

Sweden has pursued a tighter monetary policy than is necessary to achieve the inflation target in order to reduce risks associated with household indebtedness. The net benefit to ‘leaning against the wind’ has been hotly debated; this column argues strongly against it. By reducing inflation, the Riksbank has in fact increased household debt, and contractionary pressure has worsened the employment situation. The author estimates that the benefits to leaning are worth only 0.4% of the costs.

There is a lively ongoing debate about whether raising interest rates beyond the level needed to stabilise prices – ‘leaning against the wind’ – is a justified modification of flexible inflation targeting (as discussed in Smets 2013). In a new paper, I explain why leaning against the wind is the wrong monetary policy for Sweden (Svensson 2014).

According to the Riksbank’s own recently published calculations, the benefit of this policy – in the form of lower risks from household debt – is completely insignificant compared to the cost in terms of higher unemployment and lower inflation (Sveriges Riksbank 2014). Since inflation has fallen much below the inflation target and households’ inflation expectations, the policy has instead actually increased households’ real debt burden and, if anything, increased any risks from the debt. Thereby it has made more difficult the work of the Finansinspektionen (FI, the Swedish FSA) to reduce any such risks.

‘Leaning against the wind’ is a monetary policy that is tighter than that necessary to achieve the inflation target and to support Swedish economic policy’s most important goal: full employment. It thus leads to lower inflation than the inflation target and a higher unemployment rate than is sustainable in the long-run. The Riksbank has been leaning against the wind rather aggressively in the last few years, with the purpose of reducing household indebtedness and thereby any associated risks.

http://www.voxeu.org/article/why-leaning-against-wind-wrong-monetary-policy-sweden

Related Posts

  • 82
    So, the governor of the Bank of England, Mark Carney, is filling his fountain pen, and looking for a stamp. Now that inflation has fallen to 0.5% on the Consumer Prices Index (CPI) measure, he's got to write a letter to the chancellor, explaining why inflation has missed the Bank's…
    Tags: inflation, economy
  • 74
    http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf
    Tags: economy
  • 73
    Follow up of my post on BIG COMPANIES NOW HAVE A HAND IN THE COLLABORATIVE ECONOMY Here is one picture.
    Tags: economy
  • 73
    Greek debt tracker   As the government in Athens haggles with its lenders over economic reforms,Greece is running out of money. Here is what it owes in the upcoming months. http://www.ft.com/ig/sites/2015/greek-debt-monitor/
    Tags: debt, economy
  • 71
    Why do we say so ? Easy money policies of recent years could lead to big problems. Warning indicators like the significant number of original general public offerings of organizations that are unprofitable, and substantial degrees of financial debt issued to firms, often with weak credit score.
    Tags: debt, economy

Mobile-Only Bank Osper Raises $10M To Aim At UK Youth Market

Osper, a new UK startup, has come up with an innovative way to create a banking service than can be used by children, combining prepaid debit cards and smartphone apps controlled by both them and their parents. The approach could potentially reach a market underserved by most banks, but which may also be embraced by parents keen to educate their children early on about how to manage money.

The startup has also announced it’s closed a $10m (£6m) funding round, led by London’sIndex Ventures (which has backed SoundCloud and Etsy among others). Previously Osper had raised a seed round of £800,000 in June last year as an alumni of the Techstars Londonaccelerator. The cash will be used by founder Alick Varma to launch the service out of beta, roll out in the UK and eventually expand abroad. It’s also enrolled the backing of major UK TV celebrity, Davina Mccall.

Other investors include Horizons Ventures (Li Ka-Shing’s venture capital arm – investor in Spotify, Facebook and Skype); Peter Jackson (CEO of Travelex), and Darren Shapland (ex-Chairman of Sainsbury’s Bank); as well as the entrepreneurs behind businesses including Streetcar, Lastminute.com, Jawbone, SoundCloud, Skyscanner and Funding Circle.

http://techcrunch.com/

Related Posts

  • 63
    Square’s recent troubles are not exactly a secret. The Wall Street Journal published a detailed analysis on April 21, detailing Square’s financial troubles and its rapidly shrinking cash position. Square took on a $100 million debt financing option earlier this year, but even with that option, WSJ and The Verge reported that the…
    Tags: startup, economy
  • 60
    Venture capitalists are spending their money on more established companies rather thanyoung startups, according to data from the first quarter of this year. According to the latest MoneyTree report--which was put together by the National Venture Capital Association and consulting company PricewaterhouseCoopers--there were only nine seed-stage investments in the Bay Area during…
    Tags: venture, capital, year, well, money, market, early, startup, economy
  • 59
    In case you needed more proof that all our jobs will one day be occupied by robots, a Hong Kong V.C. firm has just named an artificial intelligence tool to its board of directors. The company’s also insisting the tool will be treated as an “equal” to the other board members.…
    Tags: will, ventures, uk, startup, economy
  • 56
    Some of the biggest names in Silicon Valley have been buzzing on Twitter over the last 24 hours about reinventing retail banking with better software. “I am dying to fund a disruptive bank,” venture capitalist Marc Andreessen tweeted yesterday. Other Valley heavyweights chimed in, including Chris Dixon (a colleague at Andreessen Horowitz), Keith Rabois (Khosla Ventures),…
    Tags: including, capital, ventures, bank, venture, banking, economy
  • 55
    For a decade, starting in the late nineteen-eighties, Ramesh Ramanathan worked his way up the executive ladder at Citibank in the United States. Then he led its corporate-derivatives branch in London. In 1998, however, he quit and returned to India, his country of birth. He had a new goal: finding…
    Tags: london, led, bank, will, economy

How a US decision to allow oil exports could change the world’s energy balance

America has allowed its oil companies to export oil as announced in private letters to oil companies. This will, for sure, cause a stir in the global oil markets and lead to lower prices. Global oil prices previously soared due to the fall in the supply of oil- stoppage of oil exports by Libya, and broad turbulence in Nigeria. About 3.5 million barrels, out of the total 90 million barrels of oil consumed daily, were taken off the market. The US decision to allow the export of condensate (an extremely light oil) by two Texas companies, could have a dramatic impact if the Commerce Department provides a broader definition of what is condensate for export purposes. The type of crude oil being produced in US is too light for American refineries to process. If all of this light oil is exported, it would surpass the exports of Iraq seriously undermining oil prices. 

Related Posts

  • 86
    When President Obama took office in 2009 at the height of the recession, the annual budget deficit came in at 10.1 percent of gross domestic product -- a level not seen since the end of World War II. In the five years since, the budget deficit has been sliced more…
    Tags: usa, economy
  • 85
    U.S. economy added 533,000 jobs during the first three months of the year What do we need to analyse ? -To keep pace, job creation would need to accelerate in April -Watch which sectors of the economy are adding jobs. -Flirting with Full Employment -Average hourly earnings -The participation rate…
    Tags: economy, usa
  • 77
    Most people that discuss the "economic collapse" focus on what is coming in the future.  And without a doubt, we are on the verge of some incredibly hard times.  But what often gets neglected is the immense permanent damage that has been done to the U.S. economy by the long-term…
    Tags: economy, usa
  • 73
    The following are the expectations for the minutes of the January FOMC meeting by the economists at Bank of America Merrill Lynch, Citibank, Morgan Stanley, Barclays Capital, and other leading banks. http://www.efxnews.com/
    Tags: usa, economy
  • 71
    If trade and financial sanctions were imposed on Russia, the cost to the UK might well exceed the cost to Russia. That is presumably why the Foreign Office wrote - in a document carelessly (or deliberately?) displayed yesterday for the lenses of photographers - that "the UK should not support…
    Tags: usa, economy

Is the Market Efficient? Cliff Asness Says Yes, and No

At Morningstar, AQR Capital’s leader presents Fama and Shiller’s arguments and says he’s ‘learned to live with my schizophrenia’

“I’m not a super-hardcore efficient marketer,” says Cliff Asness of AQR Capital.“I’m not a super-hardcore efficient marketer,” says Cliff Asness of AQR Capital.

Cliff Asness created a “watershed moment in the hedge fund industry” when he brought his sophisticated hedge fund strategies into the mutual fund space in 2011, said Scott Burns of Morningstar in introducing Asness last week.

Asness created a similar moment in his morning keynote speech at the Morningstar Investment Conference on Friday, exploring whether the markets are efficient in his trademarked sophisticated manner, bolstered through the display of high-end research and peppered with humor. He began by apologizing for “talking about theory at 8:00 a.m.” to a receptive audience before presenting his take on why the Nobel prize committee was correct in awarding its economics prize last year to two men who sit on opposite ends of the efficient market theory: Eugene Fama of the University of Chicago and Robert Shiller of Yale (Asness also made sure to honor the sometimes overlooked third winner of the prize last year: Lars Hansen, also of Chicago.).

“Gene and Bob are on opposite sides of the efficient market hypothesis,” Asness said, before disclosing that he’s “not exactly unbiased,” since he not only was a student of Fama’s at Chicago but his teaching assistant as well for two years, and that “along with Jack Bogle he’s one of my investing heroes.” But his bias, he said, was “at least in both directions.” He also noted that his Ph.D dissertation at Chicago for Fama argued in favor of the price momentum strategy — “that it worked” — but that Fama was gracious and supportive despite their differing beliefs.

http://www.thinkadvisor.com/

Related Posts

  • 77
    The Dow had broken 17,000, the Standard & Poor's 500 Index had touched a record high and was spitting distance from crossing 2,000. Even the small-cap indexes such as the Russell 2000 and the S&P 600 have notched new highs. And the Nasdaq, up 255 percent since the March 2009…
    Tags: market, trading, economy
  • 76
    Noah Smith and Paul Krugman have both noted the strange fact that the financial class, almost across the board, continues to argue for more austerity and a tighter monetary policy, despite the adverse effects these policies could have on the economy as a whole. This kind of blinkered thinking is…
    Tags: economy, trading
  • 73
    For 29-year-old Fyodor Bagnenko, a fixed-income trader at Dragon Capital in Ukraine, selling bonds has become a lonely business. From his seven-story office in central Kiev, about 20 minutes from the barricades on Independence Square that were the epicenter of protests that triggered the worst crisis between Russia and the…
    Tags: market, trading, year, capital, economy
  • 68
    Here they are: the most important charts in the world. A lot has changed since the last time we published this collection back in July. The economic situation in Europe has deteriorated, the unemployment rate in the US has fallen below 6%, and the Fed looks poised to conclude its…
    Tags: market, fund, hedge, economy, year, trading
  • 66
    The hedge fund industry used to have humble beginnings: in 1990, it had $40 billion in assets under management. Now, its growing appeal has led to a staggering $2.6 trillion in 2013. In retrospect with the mutual funds industry and the global financial markets, this is a small figure. However,…
    Tags: hedge, fund, trading

Taxi medallions have been the best investment in America for years. Now Uber may be changing that.

CHICAGO — A taxicab is a car remade by government, modified dozens of ways by edicts within subsections of articles of the city’s taxi code.

“Everywhere on this car has been regulated,” John Henry Assabil says. “Look at it!”

He throws up his arms in the direction of his gold-colored 2012 Ford Transit Connect. The car’s medallion number — 813 — is painted in black plain gothic figures (must be black plain gothic figures) on the driver’s-side hood, on both passenger doors and, for good measure, on the rear. Inside, there is a camera mounted over the rear-view mirror, a dispatch radio bolted to the console, a credit-card reader snapped to the passenger headrest.

From the back of Assabil’s seat hangs a sign — lamination required — spelling out the city’s fare structure: $3.25 for the base rate, $2 for the airport departure/arrival tax, $50 vomit cleanup fee. Everywhere, there are mandatory stickers. “That one costs a dollar,” Assabil says of a window decal reminding passengers to LOOK! before opening the door into the possible path of cyclists and pedestrians. “The fine for not having it is $100.”

Then there are the holes. Several have been drilled into the roof to mount the top light that distinguishes cabs from other cars at a distance. Another has been punched right into the hood, bolting down the palm-size metal plate — the “medallion” itself — that gives Assabil the right to operate this cab, one of 6,904 in Chicago.

Every one of these requirements is a point of contention in the escalating battle between the cab industry and tech start-ups such as Uber and Lyft, which threaten to upend a pact that has long existed in Chicago and other cities: In exchange for all of this regulation, taxis have for decades held a government-backed monopoly. At the center of that bargain — and the debate over what form of transportation best serves the public — is the medallion.

Assabil, a 62-year-old immigrant from Ghana, and his wife own four. Each one grants him a license, which he’s free to sell, to operate a single cab among the limited supply in the city. As of last summer, a medallion in Chicago fetched around $350,000, a sum that would buy a comfortable condo overlooking Lake Michigan — and one that buyers often finance as they would a mortgage.

In New York, taxi medallions have topped $1 million. In Boston, $700,000. In Philadelphia, $400,000. In Miami, $300,000. Where medallions exist, they have outperformed even the Standard & Poor’s 500-stock index. In Chicago, their value has doubled since 2009.

http://www.washingtonpost.com/

Related Posts

  • 72
    Uber was founded just six years ago, but it’s already one of the fastest growing companies in the world. As an illustration of just how massive the company’s growth has been, Uber has reportedlycreated over 160,000 jobs in the United States alone and plans to create over a million more…
    Tags: uber, startup
  • 69
    Square is starting to look oddly hollow. The payments company, set up and run by Jack Dorsey, is set to raise $200 million in new financing, according to Bloomberg. That would value the company at $6 billion. While big, it’s a deflated figure, considering Square’s former hype, the small amount…
    Tags: $, startup
  • 67
    First, let’s figure out why we are talking about funding as something you need to do. This is not a given. The opposite of funding is “bootstrapping,” the process of funding a startup through your own savings. There are a few companies that bootstrapped for a while until taking investment,…
    Tags: startup

Amazon May Have Just Created a Weapon of Mass Consumption

With its announcement of a new smartphone this week, Amazon unveiled advanced camera technology that could arguably be called “point and shoot yourself in the foot.”

Amazon’s foray into smartphones includes image-recognition technology that lets consumers point the phone at a product to buy it from its online store. The phone’s Firefly button recognizes more than 70 million products, the company says. Mixing compulsive smartphone usage with the instant gratification of point-and-purchase could take impulse spending to a new level. Within minutes of the announcement, the twitterverse saw the potential: “Amazon launches a shopping machine,” one person tweeted, “calls it a smartphone.”

But shopping convenience may come at a high cost for some people. The more removed people are from purchasing with cash the more they tend to overspend, behavioral finance experts say. Research shows that when people pay with plastic they can spend 20 percent to 30 percent more than when they use cash, says Denise Hughes, a financial coach based in San Carlos, California. Casinos use chips, behavioral experts note, to also remove the regulating “pain of paying.”

The phone could remove “frictions and barriers” — like taking out a wallet — that get people to think about purchases in a less emotional way, says Dan Ariely, behavioral economics professor at Duke University’s Fuqua School of Business. “The ability to act very quickly on our emotions is going to simply get people to buy more impulsive things,” he says. And those things, he adds, aren’t going to be vitamins or long-term savings bonds. “They’d buy stuff that is more shiny and tempting at the moment, like the new Amazon phone.”

http://www.bloomberg.com/

Related Posts

  • 69
    The growth of Amazon and eBay illustrates that businesses and consumers alike are willing to purchase what they need online rather than from a salesperson. That trend toward online buying will continue, according to Gerhard Gschwandtner, publisher of Selling Power magazine, and host of the Sales 2.0 Conference in Boston on July 14, 2014. "The integration…
    Tags: online, percent, products, consumers, amazon, technology, trend
  • 44
    We caught up with billionaire entrepreneur and investor Mark Cuban during South by Southwest Interactive in Austin. Our first question: what apps does the "Shark Tank" star and Dallas Mavericks owner have on his smartphone? Read more: http://www.businessinsider.com/mark-cuban-13-apps-phone-2014-3#ixzz2wLaru5Rl
    Tags: smartphone, phone, trend
  • 44
    Amazon is offering its warehouse employees up to $5,000 to quit their jobs, even as the company is in the process of adding workers and locations. The "Pay to Quit" program, which was announced by CEO Jeff Bezos in his letter to shareholders late Thursday, is an effort to make…
    Tags: amazon, company, pay
  • 44
    Amazon plans to launch Project Kuiper, a network of 3,236 small satellites to create an interconnected network that beams high-speed internet to anywhere on Earth. Morgan Stanley estimates Project Kuiper represents as much as a ”$100 billion opportunity.” The firm’s estimate is based on its expectation that the space economy…
    Tags: amazon, based, business
  • 43
    Thanks to PricewaterhouseCoopers’ (PwC) 2014 report on Cities of Opportunity, job seekers have a handy list of some of the best cities to find a job across the world. Using 10 indicators to look at the factors that contribute to a well-balanced city, the study compared 30 different cities and…
    Tags: based, trend

The Government Debt Ponzi

Dysfunctional Bond Markets – A Comparison of Yields

Below we show the 10 year government bond yields of three countries: Spain, Japan and the United States. Also shown are budget deficits and total public debt as a percentage of GDP. It would actually make more sense to look at deficits as a percentage of tax revenues. The comparison of debt to GDP seems not to make a lot of sense intuitively, as governments cannot pay their debts out of ‘GDP’, but only out of tax revenues (note also that there are slight differences in the GDP calculations).

Anyway, the point is mainly to compare the three countries, as both Spain’s and Japan’s bond yields essentially reflect zero risk at this point. In fact, investors seem to assume that the combination of inflation risk and default risk in Spain and Japan is lower than in the US, which strikes us as slightly absurd, if only for “technical” reasons. An overview of annual CPI rates of change is shown as well.  Also included above the bond yield charts are the credit ratings assigned by the three big credit rating agencies (in this order: S&P, Moody’s, Fitch).

http://www.acting-man.com/?p=31039

Related Posts

  • 78
    Interest rates are supposed to reflect credit-worthiness of a country, thus investors should require financially weak countries to pay higher interest rates to compensate for risk. That makes it difficult to explain why a 10-year government bond in the United States yields 2.05 percent, while 10-year bonds in France, Italy…
    Tags: rates, year, bond, reflect, yields, yield, states, spain, investors, countries
  • 74
    The Spanish government Monday launched its long-awaited 50-year bond, stretching the maturity of the country's debt into new territory, the finance ministry said. The country raised 1 billion euros ($1.31 billion) through a so-called private placement, meaning the bonds were sold directly to specific investors.
    Tags: bond, year, government, investors, debt, economy
  • 73
    The quick move higher in the yields of Europe's weakest sovereigns from historic lows may be just the beginning and on the edges it could start to affect other low-rated credits where investors have hunted for yield—such as U.S. junk bonds. Driven by speculation about the European Central Bank and…
    Tags: investors, yield, yields, year, bond, economy
  • 71
    I will let you guess where we are in this "cycle". Within a fractional reserve banking system, if the Federal Reserve decreases the discount rate and the rate is lower than the long bond rate by enough of a spread, the banks get motivated to borrow at or close to the  discount rate and loan…
    Tags: economy, bond
  • 65
    For 29-year-old Fyodor Bagnenko, a fixed-income trader at Dragon Capital in Ukraine, selling bonds has become a lonely business. From his seven-story office in central Kiev, about 20 minutes from the barricades on Independence Square that were the epicenter of protests that triggered the worst crisis between Russia and the…
    Tags: year, bond, economy

How Much Longer Will the Dollar Remain the Reserve Currency of the World?

The US Dollar’s status as a reserve currency seems to be a perennial concern for many people these days.  I think this concern is often dramatically overstated.  I was reminded of this point as I was reviewing the slides from Jeff Gundlach’s presentation yesterday which showed the following chart:

Source : http://pragcap.com/how-much-longer-will-the-dollar-remain-the-reserve-currency-of-the-world

Related Posts

  • 85
    Follow up of my post on BIG COMPANIES NOW HAVE A HAND IN THE COLLABORATIVE ECONOMY Here is one picture.
    Tags: economy
  • 85
    http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf
    Tags: economy
  • 81
    The plunge of the lira has already exposed the Turkish economy’s dependence on short-term foreign investment. Most foreign capital is invested in Turkish stocks and bonds rather than longer-term projects. All it takes is a phone call or a few clicks of a mouse for short-term investors to move their…
    Tags: economy, currency
  • 81
    Greek debt tracker   As the government in Athens haggles with its lenders over economic reforms,Greece is running out of money. Here is what it owes in the upcoming months. http://www.ft.com/ig/sites/2015/greek-debt-monitor/
    Tags: economy
  • 80
    This is a story about ARM Holdings (ARMH), the mobile technology company. But before it gets going, here are a few things you need to know: 1. ARM is a company made up mostly of chip engineers. They design parts of chips—such as graphics and communication bits—and they design entire…
    Tags: economy

Some clue how to trade ECB news 5-Jun-2014

The following are the key points in Goldman Sachs note on the ECB meeting today

1- The rate decision will be announced at 12:45 London time. Given that a deposit cut was telegraphed a month ago, the main question is whether this decision will be in line with market consensus (a 10-15bp cut) or greater (say 20bp). In the former, we expect EUR/$ to be essentially flat into the start of the press conference at 13:30, while the latter could see the cross fall around a big figure into the start of the press conference. 

2- The next stop is the opening statement, which ECB President Draghi will read out during the early minutes of the press conference. This will broadcast what credit easing measures will be taken and reveal the latest inflation forecast. On the former, the strongest signal for EUR/$ downside would come if the ECB gives a headline number for the liquidity impact of credit easing (something like “…the combined measures are ultimately expected to inject EUR200bn in liquidity), while the least favourable scenario is a kind of “rolling” LTRO, for example where banks can get liquidity for new lending every six months. The latter example would likely be a disappointment to the market, taking EUR/$ higher by a big figure or two, while the former could see EUR/$ weaken another big figure or two (especially if credit easing surprises the market, i.e., a 4-year LTRO with broad collateral and favourable haircuts or larger-than-expected ABS purchases). 

3. In FX strategy, the single most important node in tomorrow’s decision tree is the inflation forecast, specifically that for outlying years. If the 2016 forecast is marked down to 1.3% or 1.4%, this would be a de facto strengthening of the ECB’s easing bias, since it would openly acknowledge that further easing measures are needed to bring inflation back to target. We see this as the strongest possible signal for EUR/$ downside, since it subsumes many different kinds of future easing, including Fed-style QE. We think this could take EUR /$ down another big figure or more, as the market updates its reaction function for the ECB. If instead the inflation forecast is left unchanged in the context of a reluctant easing, this will set the stage for EUR/$ to move back up to 1.39. 6. There is obviously lots of ambiguity in all this.

4- A lot will hang on wording, demeanor and emphasis, where there are many shades of grey. However, our basic view remains that the ECB will surprise on the dovish side tomorrow, given the drop in core inflation and the signal sent at the last meeting. 

Related Posts

  • 78
    A number of changes have been taken or proposed as a result of the financial crisis of August 2007 and the “Great Recession” that are worth discussing in terms of the euro crisis. Most important, though, are the changes of the period between late 2011 and 2012: strict budget rules,…
    Tags: ecb, meeting, europe, economy
  • 67
    The European Debt Crisis Visualized http://www.bloomberg.com/
    Tags: europe, economy
  • 66
    Greece could take a risky step into the unknown tomorrow if it misses, as expected, a 1.5 billion euro debt payment to the International Monetary Fund. For the moment, credit rating agencies though would not declare Greece officially "in default" on its debt, because the missed payment is to an…
    Tags: will, tomorrow, economy, ecb
  • 66
    Facing a cash crunch, Greece is seeking to extend its bailout program with eurozone creditors before it expires on Feb. 28. Here’s what Greece owes, when.   Source : http://graphics.wsj.com/greece-debt-timeline/
    Tags: europe, ecb
  • 65
    The world’s major currencies, which had traded in a relatively stable range, are now in motion -- buffeted by different regional growth and interest rates as well as a simmering brew of geopolitical tensions. Differences are particularly noticeable between the U.S. and Europe, and how far apart currencies in those…
    Tags: europe, ecb, credit, will, economy

ECB ready to cut rates and push banks

The European Central Bank is poised to impose negative interest rates on its overnight depositors, seeking to cajole banks into lending instead and to prevent the euro zone falling into Japan-like deflation.

At its meeting on Thursday, ECB policymakers may also launch a loan program for banks with strings attached to make sure the money actually gets out into the euro zone economy.

It will be the first of the “Big Four” central banks – ECB, Bank of England, Bank of Japan and U.S. Federal Reserve – to go the negative interest rate route, essentially charging banks to deposit with it.

Even though the risks are limited of the euro zone entering a spiral of falling prices, slowing growth and consumption, the ECB is increasingly concerned that persistently low inflation and weak bank lending could derail the recovery.

The economy grew just 0.2 percent in the first quarter, and euro zone annual inflation unexpectedly slowed to 0.5 percent in May, official data showed this week, piling additional pressure on the central bank to step in.

“Consensus for action is high so there is a … risk the ECB under-delivers relative to the market’s lofty expectations,” said Andrew Bosomworth, a senior portfolio manager at bond fund Pimco in Munich.

Since ECB President Mario Draghi last month signaled the Governing Council’s readiness to act in June, policymakers have come out in force to discuss the ECB’s toolbox, feeding expectations that a broader stimulus package is in the making.

This is likely to consist of a cut in interest rates, which would push the deposit rate for the first time into negative territory and the offer of longer-term loans linked to further lending. Large-scale asset purchases remain a distant prospect.

Cutting the deposit rate below zero would see the ECB charge banks for parking their excess money at the central bank – a step it hopes will prompt them to lend out the money instead.

Economists in a Reuters poll expected the ECB to cut its main refinancing rate to 0.10 percent from 0.25 percent and the deposit rate to -0.10 percent from zero, on top of launching a refinancing operation aimed at funding firms.

They expect bank lending to rise as a result of such measures, but foresee only a marginal impact on the euro.

The euro has fallen about 4 U.S.-cents against the dollar since the ECB’s May meeting, hitting $1.3586 last Thursday.

http://www.reuters.com/

Related Posts

  • 83
    Though ECB cut  was covered by the Press in great details but only a few analyzed the results of such measure. Only independent writer/economists talked about the potential losers and winners of the situation. In this article featured in The Telegraph , an economic writer talks about critiques the actions of…
    Tags: rates, ecb, rate, interest, euro, zone, cut, bank, central
  • 82
    European Central Bank President Mario Draghi hoped never to see this moment: Consumer prices in the euro region have dropped by 0.2 percent, according to December figures just published: Deflation -- a sustained period of falling prices that discourages consumers from spending and businesses from investing -- threatens to worsen the…
    Tags: euro, percent, ecb's, meeting, inflation, central, bank, falling, ecb
  • 81
      It was almost exactly five years ago that the euro crisis erupted, starting in Greece. Investors who had complacently let all euro-zone countries borrow at uniformly low levels abruptly woke up to the riskiness of an incompetent government borrowing money in a currency which it could not depreciate. There…
    Tags: euro, zone, will, ecb
  • 80
    Runners have target times, golfers judge themselves by their swing, while Mario Draghi watches a technical measure of inflation expectations used by financial markets. Just one problem: it suggests the European Central Bank president is not achieving his objective – and that markets’ fears of eurozone deflation are mounting. Since…
    Tags: inflation, central, ecb, rate, expectations, euro, bank
  • 78
      In 2013 Greek taxpayers borrowed from the rest of Europe’s taxpayers €41 billion to pump into the Greek banks. This is well known. What is not known is that, also in 2013/4, the Greek banks received an additional, well hidden, €41 billion bailout loan from Greek and European citizens. This…
    Tags: bank, banks, euro, economy, ecb