November 18, 2024

You are here: Home / Archives for bank of england

European Central Bankers Criticize Role of Rating Agencies

January 18, 2012 by Leave a Comment

Mario Draghi, the president of the European Central Bank, and Mervyn A. King, the governor of the Bank of England, separately questioned the role of rating agencies after Standard Poor’s cut its ratings Friday on nine European countries, including France and Italy.

One should “put less focus directly on what the ratings agencies say and more on what the market as a whole is saying in terms of sovereign debt,” Mr. King told a parliamentary committee Tuesday in London. “What we need to do is to move to a point, and I think markets have gone some way towards that, where they pay less attention to the verdicts of the ratings agencies.”

Mr. Draghi told the European Parliament in Strasbourg on Monday that “we should learn to do without ratings, or at least we should learn to assess creditworthiness.”

He added, “Certainly one needs to ask how important are these ratings for the marketplace over all, for investors.”

Ratings agencies have attracted criticism from politicians for specific downgrades, but the comments from the two central bankers questioned the wider role of the agencies.

The three big rating agencies — S.P., Moody’s Investors Service and Fitch Ratings — have repeatedly lowered their ratings for the sovereign debt of European economies over the past year, saying some austerity measures were not far-reaching enough to deal with high debt levels. The downgrades have made it more difficult for governments to raise money cheaply and heightened concerns about the ability of some countries to finance their debts.

Martin Winn, a spokesperson for Standard Poor’s, said the agency was “focused on fulfilling our role to investors by providing an independent view of creditworthiness — one based on rigorous analysis and our transparent and consistently applied criteria. We would also point out that our sovereign ratings have an excellent track record as indicators of default risk.”

A Moody’s representative said, “The fundamental concern over the role of credit rating agencies stems from their use in regulation, and Moody’s has long supported removing the mechanical reliance on ratings in regulation.”

A spokesman for Fitch, Daniel Noonan, wrote by e-mail that credit ratings “should be considered among numerous inputs when making investment decisions.” He added that Fitch “broadly supports efforts to reduce overreliance on ratings.”

In a sign that investors are already starting to pay less attention to rating agencies, Spain’s borrowing costs fell during an auction Tuesday even after Standard Poor’s cut the country’s debt rating by two levels on Friday. Greece also sold Treasury bills on Tuesday with a yield that was lower than at an auction in December.

Stock markets on Monday had shown a muted reaction to the downgrades, which were widely anticipated, and to a separate warning by Moody’s that France’s debt outlook was putting pressure on its credit rating.

Standard Poor’s on Monday also cut the top credit rating of the European Financial Stability Facility, the euro zone’s bailout fund, which sold €1.5 billion, or $1.9 billion, of six-month bills Tuesday.

The German finance minister, Wolfgang Schäuble, told a German radio station on Monday that he did not think “that S.P. really has understood what we have already gotten under way in Europe.”

The European Commission said Monday that Standard Poor’s recent downgrades of European economies ignored the progress that the countries had already made by reducing debt and implementing cost-saving measures.

Mr. King also sent a warning Tuesday to British banking executives not to accept excessive bonuses. “The reputation of those institutions will be affected if their senior executives reward themselves,” he said. “Particularly in a period when the banks, in terms of their share prices, have hardly been stellar.”

Josef Ackermann, the chief executive of Deutsche Bank, lamented Tuesday what he said was the erosion of confidence in the solidity of the euro, the European Union and even the principles of Western democracy.

“Not only followers of the Occupy movement have been asking questions about the business models of banks and the purpose of certain financial product,” Mr. Ackermann told a business audience in Frankfurt. “It is also investors, customers and representatives of the entire political spectrum.”

“Doubts expressed publicly by politicians have deeply shaken belief in the permanence of the currency union,” he said.

“The government debt crisis has amplified the loss of credibility and legitimacy of the market economy,” he added, adopting an unusually pessimistic tone four months before he is to retire. “The belief in the superiority of the West and of democracy has been thrown into question.”

Jack Ewing contributed reporting from Frankfurt.

Article source: http://feeds.nytimes.com/click.phdo?i=f1a9e1cf53528634ea71788ae80119a0

Filed Under: Economy News Tagged With: , ,

Central Banks Take Joint Action to Ease Debt Crisis

November 30, 2011 by Leave a Comment

The central banks announced that they would slash by roughly half the cost of an existing program under which banks in foreign countries can borrow dollars from their own central banks, which in turn get those dollars from the Fed. The banks also said that loans will be available until February 2013, extending a previous endpoint of August 2012.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement. The participants in addition to the Fed are the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.

The move makes clear that regulators increasingly are concerned about the strain that the European debt crisis is placing on financial companies, which are facing increasing difficulty in borrowing through normal channels the money that they need to fund their operations and obligations.

The European Central Bank borrowed $552 million through the existing facility during the week ending Nov. 23 to meet the liquidity needs of European banks. Data for the past week is not yet available.

On Wall Street, stocks raced ahead at the 9:30 a.m. start of trading in New York, an hour and a half after the announcement by the central banks. The Standard Poor’s 500-stock index, a measure of the broad market, rose 3.2 percent; European markets were up more than 3 percent in late trading.   

Under the new terms of the program, the existing interest rate premium of 0.1 percentage points on those loans will be reduced by half, to 0.05 percentage points, effective Dec. 5.

The other central banks said they had also agreed to make similar loans of their own currencies as necessary, but they noted that the only extraordinary demand at present was for dollars.

Stocks surged after the action was announced, with European markets up more than 4 percent in afternoon trading, while United States stock futures were up sharply.

“U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses,” the Fed said in its statement.

Article source: http://feeds.nytimes.com/click.phdo?i=aaebecba830bac80cf2e6d7c0ffd409d

Filed Under: Business News Tagged With: , ,

News Analysis: Central Bank’s Message to Europe: ‘No’ Means ‘No’

November 26, 2011 by Leave a Comment

The E.C.B. has a fire hose — its ability to print money. But the bank is refusing to train it on the euro zone’s debt crisis.

The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills — more than three percentage points higher than a similar debt auction on Oct. 26. It was the highest interest rate Italy has had to pay to sell such debt since August 1997, according to Bloomberg News.

But there is no sign the E.C.B. plans a major response, like buying large quantities of the country’s bonds to bring down its borrowing costs. The E.C.B. “is not the fiscal lender of last resort to sovereigns,” José Manuel González-Páramo, a member of the executive board of the bank, told an audience at Oxford University on Thursday, a view that has been repeated by members of the bank’s governing council in recent weeks.

To many commentators, the E.C.B.’s attitude seems so incomprehensible that they assume the central bank is just putting pressure on politicians to make sure they keep their promises. Rather than let the euro break apart, the thinking goes, the bank will eventually relent and drench the economy with cash as the United States Federal Reserve and Bank of England have done.

But another possibility is that when the E.C.B. says “no,” it in fact means “no.”

“I think markets are going up a blind alley thinking there’s going to be a common euro bond or thinking that the E.C.B. is going to act as a lender of last resort,” Norman Lamont, the former British finance minister, told Bloomberg on Friday. “I think Germany would rather leave the euro than see the E.C.B.’s integrity affected.”

Instead, the E.C.B. insists, euro area governments must amend their errant ways. “Governments need to ensure, under any circumstances, the achievement of announced fiscal targets and deliver the envisaged institutional and structural reform programs,” Mr. González-Páramo said in London on Friday.

E.C.B. policy makers have been consistent in arguing that huge purchases of government bonds would violate the bank’s mandate and not solve the crisis.

Mr. González-Páramo even accused investors of cynical self-interest when they pleaded for a European version of quantitative easing, the use of large purchases of securities to encourage economic growth.

“Market participants that call for the E.C.B. to play this role may care only about the nominal value of their assets and the need to avoid losses,” he said in Oxford.

To outsiders, it may seem that the E.C.B., based in Frankfurt and steeped in the conservative culture of the Bundesbank, would rather let the euro go up in smoke than compromise its principles. But policy makers do not see the choice in those terms.

To them, the best way to address the crisis is to stick to principles, the most important of which is preserving price stability. That is set out in the first sentence of the statute that defines the E.C.B.’s tasks. “The primary objective” of the European system of central banks “shall be to maintain price stability,” the statute reads.

E.C.B. policy makers also believe that their charter forbids them from using bank resources to finance governments. If they expanded the money supply to provide debt relief to Italy, policy makers believe, they would be breaking the law. They would also effectively be transferring the debt burden from countries like Greece and Italy to countries like Germany or the Netherlands.

The E.C.B. has been buying Italian government bonds and debt from other troubled countries, but in relatively modest amounts and always on the ground that intervention was needed to maintain control over interest rates and prices.

Mr. González-Páramo argued this week that the restriction on E.C.B. action, far from a handicap, was a good thing. It helps policy makers resist the temptation to print money rather than make painful changes.

Article source: http://www.nytimes.com/2011/11/26/business/global/as-crisis-deepens-ecb-stands-firm.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Bank of England Holds Benchmark Rate Steady

November 10, 2011 by Leave a Comment

LONDON — The Bank of England agreed Thursday to keep its key interest rate unchanged on Thursday because of growing concerns that the debt crisis in Europe could push Britain’s economy back into recession.

The central bank left its benchmark interest rate at a record low of 0.5 percent. It also kept its bond purchasing program at £275 billion, or $441 billion, after increasing it by £75 billion last month in an attempt to help a weakening economy.

“The economic outlook has deteriorated over the last month,” Philip Shaw, an economist at Investec Securities in London, said. “The economic data suggested the U.K. could come close to a recession.”

Britain’s economic recovery is tightly linked to developments on the European Continent, where problems in Greece spread to Italy, which is struggling to calm investors and keep borrowing costs down.

The group of nations that share the euro as a common currency is Britain’s biggest export market, and Prime Minister David Cameron has repeatedly said that it was in Britain’s interest to find a solution for Greece’s debt problems and stabilize the euro.

Britain is a member of the European Union but not part of the euro zone.

Some economists said the Bank of England could decide to increase its bond-purchasing program further in the first quarter of next year if the economic outlook deteriorates. In an attempt to help economic growth in Europe, the new president of the European Central Bank, Mario Draghi, last week cut the benchmark rate to 1.25 percent to 1.5 percent.

There was a 50 percent chance that Britain’s economy could slip back into recession, the National Institute for Economic and Social Research said this month. British households are being squeezed as the government and many companies froze pay while costs for food and other items rose. Inflation is currently at 5.2 percent, more than double the central bank’s 2 percent target.

“The biggest threat to the British economy right now is uncertainty itself,” George Osborne, the Chancellor of the Exchequer, said in a speech to British entrepreneurs on Tuesday. The concerns are “rising energy prices, euro zone debt markets in turmoil, an international crisis of confidence,” he said.

In a sign that concerns about rising living costs and unemployment among some consumers translated into lower spending, retail sales fell 0.6 percent in October from a year earlier, according to the British Retail Consortium released Tuesday. An index of manufacturing also declined last month.

Article source: http://feeds.nytimes.com/click.phdo?i=9081780f987f4f3cbb9fd346fcf901ad

Filed Under: Economy News Tagged With: , ,

Central Banks in Europe Keep Rates on Hold

August 4, 2011 by Leave a Comment

FRANKFURT — Once again using its firepower to try to calm market tension after efforts by euro zone governments failed, the European Central Bank unexpectedly intervened in bond markets Thursday in an apparent attempt to prevent the region’s sovereign debt crisis from engulfing Italy.

The E.C.B. also moved to prop up weaker banks that may be having trouble raising funds, expanding its lending to euro zone institutions at the benchmark interest rate. The E.C.B. left that rate unchanged at 1.5 percent on Thursday, while the Bank of England left its benchmark rate at a record low of 0.5 percent.

Jean-Claude Trichet, the president of the E.C.B., declined to say what bonds the bank was buying or how much. He said the bank acted in response to “renewed tensions in some financial markets in the euro area.” It was the first such intervention since March.

Mr. Trichet also said that uncertainty created by the U.S. budget debate had unsettled European markets. “It’s clear the entire world is intertwined,” he said. “What happens in the U.S. influences the rest of the world.”

As markets demanded higher risk premiums on Spanish and Italian bonds during the past week, analysts began to speculate that the E.C.B. would return to the bond market. But most had not expected the bank to act so quickly.

Yields on Spanish and Italian bonds fell Thursday, though experience shows the decline could be short-lived. Similar action last year helped push down yields on Greek debt, but they later rose to record levels.

The E.C.B. will not disclose the scope of its bond-buying until next week at the earliest, but early indications were that the amounts were relatively modest. “It might be interpreted as more of a warning shot rather than a broad-based onslaught,” analysts at Barclays Capital said in a note.

The E.C.B. also responded to signs of stress in interbank markets as banks, wary of each other’s exposure to troubled government paper, became reluctant to lend to each other. One worrisome sign was a spike in the cost for European banks to borrow dollars in the open foreign exchange market.

Mr. Trichet said that next week the E.C.B. would lend banks as much cash as they wanted for six months at the benchmark interest rate, assuming they can provide collateral. A six-month term is longer than is customary.

The bank’s actions on Thursday provided another example of the E.C.B. acting as the euro area’s firefighter after efforts by governments fell short.

European leaders decided last month to authorize the European Financial Stability Facility — the European Union’s bailout fund — to buy bonds in open markets, relieving the E.C.B. of that responsibility. But it will take months before the E.F.S.F. is able to start making purchases. In addition, European leaders did not increase the size of the fund, leaving questions about whether it would be up to the task if a country as big as Italy or Spain needed help.

Speaking to reporters after a regular meeting of the E.C.B. governing council, Mr. Trichet beseeched political leaders to speed up efforts to cut their budget deficits and remove impediments to growth, such as overly protected labor markets.

“The key for everything is to get ahead of the curve, in fiscal policy and structural reform,” he said.

Mr. Trichet also gave a more subdued view of the economy. “Recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter,” he said. Mr. Trichet said that while he expected moderate growth to continue, “uncertainty is particularly high.”

That assessment suggests the E.C.B. may wait to raise its benchmark rate again. The central bank has raised its main rate in two steps since April, from 1 percent to the current 1.5 percent, in an attempt to head off rising inflation.

Analysts expect the E.C.B. to raise rates for the 17-nation euro area again at the end of this year or early next year, after Mr. Trichet retires at the end of October and hands the presidency to Mario Draghi, governor of the bank of Italy.

Similarly, the Bank of England left its benchmark rate unchanged because the country’s economy remains weak. The Bank of England also kept its bond purchasing program — which injects money into the economy to spur growth — at £200 billion, or $326 billion.

The British economy grew 0.2 percent in the second quarter from the first quarter, when its G.D.P. rose 0.5 percent. The manufacturing sector shrank in July, an unexpected development that also pointed to a weak economy.

One factor weighing on the British economy has been the sovereign debt crisis, since the euro zone is the country’s biggest export market.

“It’s not a spectacular recovery,” said Michael Taylor, an economist at Lombard Street Research in London. “It’s choppy and it’s disappointing and that does argue for an unchanged policy well into next year.”

A far-reaching government austerity program that froze public sector pay and pensions and increased some taxes is another factor holding back growth. At the same time, consumer price inflation remains well above the Bank of England’s 2 percent target — conditions that would normally lead the bank to raise interest rates.

Prime Minister David Cameron warned last month that the economic recovery would be difficult. So far his government is sticking to the deepest budget-cutting program since World War II despite mounting criticism from members of the opposition, who argue it is too punishing.

There is also growing pressure on the British government and the central bank to consider other measures to fuel economic growth. The National Institute for Economic and Social Research, which supplies information to the Bank of England and other clients, said on Wednesday that cutting taxes would be one way to help the economic recovery.

British businesses continue to feel the impact of the weak economy. Holidays 4U, a travel service, ran out of money on Wednesday, leaving hundreds of passengers stranded. The fashion retailer Jane Norman and the wine retailer Oddbins went into administration earlier this year. Many stores have started to discount merchandise early to lure wary consumers, whose disposable incomes have been reduced by inflation.

Julia Werdigier reported from London.

Article source: http://feeds.nytimes.com/click.phdo?i=3abf6d4cdc9031951a68b9185db878cb

Filed Under: Business News Tagged With: , ,

European Central Bank Holds Rate Steady but Hints at a July Increase

June 10, 2011 by Leave a Comment

The euro fell against the dollar, however, after Jean-Claude Trichet, the central bank president, continued a disagreement with the German government by rejecting any suggestion that creditors of Greece should be required to share the burden of a rescue plan.

“We are not in favor of restructuring, haircuts and so forth,” Mr. Trichet said at a news conference after the bank’s governing council met about monetary policy.

His statements were an implicit rebuke to Wolfgang Schäuble, the German finance minister, who said on Wednesday that holders of Greek bonds should swap them for debt that the country would have longer to repay.

The Bank of England, meanwhile, kept its main interest rate at a record low amid concerns that the country’s economy was still too weak to cope with higher borrowing costs.

In the 17-nation euro zone, which does not include Britain, the European Central Bank has been more focused on inflation, which has been pushed up by rising food and energy prices.

“Strong vigilance is warranted,” Mr. Trichet said. That language seemed to indicate that a rate increase in July is probable, though the bank always leaves its options open.

Central bank economists slightly lowered their forecast for inflation next year, suggesting that the bank might feel less pressure to raise rates quickly.

On Thursday, the European Central Bank left its benchmark rate at 1.25 percent, after raising it in April from 1 percent, the first increase in two years. Inflation in the euro area was 2.7 percent in May.

“When I compare inflation today to interest rates, I see a negative number,” Mr. Trichet said.

The benchmark rate in Britain was left at 0.5 percent, and Britain’s bank also kept the size of its asset purchase plan unchanged at £200 billion, or about $327 billion.

The European Central Bank said it would continue its emergency support of euro zone banks by granting them unlimited low-interest loans at least through September.

With Germany, Europe’s largest economy, growing so quickly that some economists fear overheating, the central bank has been trying to nudge interest rates back to levels that would be normal in an upturn.

But the Greek debt crisis still threatens growth in the euro zone as a whole.

Economies in Spain, Ireland and other so-called peripheral countries remain sluggish. Higher rates could make it harder for those countries to recover.

Mr. Trichet argued that the best way to help the European economy was to make sure that prices were contained.

“It is good for all countries,” he said.

Questions about Greece dominated the news conference, and Mr. Trichet showed no sign of being willing to consider a Greek restructuring unless it was done voluntarily by creditors — an outcome that is difficult to imagine.

He implied that any restructuring of Greek debt might prompt the bank to stop accepting the country’s bonds as collateral.

A move like that could be fatal for some Greek banks that depend on low-cost loans from the central bank.

“It is difficult to see how this debate will be resolved,” said Marie Diron, senior economic advisor at Ernst Young, the consulting firm.

“Someone, either the E.C.B. or the German government, needs to make some concessions to reach a compromise,” she wrote in a note.

“And this needs to happen soon as time is running out for Greece to refinance its debt.”

Greece reported that its economy shrank far more than expected at the start of 2011.

That could signal that a second wave of austerity measures demanded by the European Union and the International Monetary Fund would impose even more pain on a fractious society.

Gross domestic product fell at an annual rate of 5.5 percent in the first three months of this year, the official numbers showed, far more than an earlier estimate of 4.8 percent.

Though it does not belong to the euro zone, Britain also remains fragile economically.

Consumer confidence worsened in April as more people claimed unemployment benefits and as wage increases lagged behind inflation.

Spending cuts and tax increases that are part of the government’s austerity program made households even more reluctant to spend.

The British economy stagnated in the six months through the end of March. The Bank of England governor, Mervyn A. King, has warned that inflation could accelerate to about 5 percent in the short term before cooling off again.

Higher consumer prices, partly a result of higher commodity prices, have also contributed to slowing household spending.

“The story of weak growth is still going to continue for a while,” said James Knightley, a senior economist in London for ING Financial Markets.

Some economists had predicted that British rates would rise in May this year, but as the economic outlook deteriorated they have pushed that back. Mr. Knightley said he expects an increase as early as this November.

The Bank of England did not issue a statement Thursday. But Paul Fisher, an official at the bank, argued last week that raising interest rates should be delayed until the economy was stronger.

The International Monetary Fund on Monday backed Prime Minister David Cameron’s plan to cut Britain’s budget deficit, which had been criticized by the opposition Labour Party as too strict and harming the economic recovery.

Though it was a formality, the central bank officially endorsed Mario Draghi, governor of the Bank of Italy, as successor to Mr. Trichet, whose eight-year term expires at the end of October.

European leaders are expected to officially nominate Mr. Draghi this month. In a statement, the central bank called Mr. Draghi, “a person of recognized standing and professional experience in monetary or banking matters.”

Jack Ewing reported from Frankfurt and Julia Werdigier from London.

Article source: http://www.nytimes.com/2011/06/10/business/global/10rates.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Britain Warns of Inflation Risk

May 12, 2011 by Leave a Comment

The bank also said the British economy was not growing as fast as it had expected, as “the continuing squeeze on households’ real incomes is likely to weigh on demand, especially over the next year or so.”

“Although inflation fell to 4 percent in March, it remains uncomfortably high and well above the 2 percent target,” Mervyn A. King , the central bank governor, said at a news conference in London. “And there is a good chance that if utility prices rise further later in the year, inflation will reach 5 percent before falling back through 2012 and into 2013.”

Mr. King said that inflation was being driven primarily by higher prices for commodities and imports, as well as an increase in Britain’s value-added tax. Considering the sensitivity of inflation to such factors and recent volatility in commodity prices, he said, “there is a great deal of uncertainty in the outlook for inflation.”

The FTSE 100 slipped and the pound rose against the dollar, jumping to $1.6476 from $1.6367, on expectations that the bank would raise its main interest rate target this year from the current level of 0.5 percent, a record low, where it has stood since March 2009.

Because of increasing energy prices, consumer price inflation “is likely to rise further this year and is more likely than not to remain above the target throughout 2012,” the central bank said.

The latest data suggests the committee will make its first interest rate increase in the second half of 2011, possibly in August or November, Simon Hayes, an economist with Barclays Capital in London, wrote in a research note. Referring to the Bank of England Monetary Policy Committee, he wrote, “We believe most M.P.C. members will want to take the opportunity to move away from the current extremely loose policy setting, which, after all, was adopted as an emergency measure.”

The committee, Mr. Hayes wrote, “has become increasingly uncomfortable with the fact that it keeps pushing out the point at which inflation returns to target,” and “the current policy setting looks increasingly unlikely to generate the necessary drop at any reasonable time horizon.”

In the 17 nations of the euro zone, prices at the consumer level rose 2.7 percent in March from a year earlier, above the European Central Bank’s 2 percent target and matching the March rise in the United States.

Inflation in China is running at more than 5 percent.

The European Central Bank has already raised its main rate once this year and has signaled that another increase could come in July.

Article source: http://feeds.nytimes.com/click.phdo?i=0517c6c914014a88bf46912ecd9724dc

Filed Under: Economy News Tagged With: , ,
« Previous Page