Central banks / bond markets

Emerging markets under corona stress

The COVID-19 crisis is a major challenge for the emerging markets. The growth dynamics of the countries are visibly suffering and at the same time the risk appetite of investors is decreasing. Capital withdrawal and lower investments are the result. For the Turkish economy, the Corona pandemic is a special challenge, as it is still weakened by the consequences of the last currency crisis two years ago. In Turkey, two important industries, the export industry and the tourism sector, have been hit hard. In contrast to the currency crisis two years ago, they are now completely absent as a support. The Turkish economy is therefore likely to suffer greater damage in the current year than in the currency crisis of 2018 and the financial crisis of 2009. The Turkish economy is expected to shrink by 8% in 2020 compared with the previous year. The development of the currencies reflects the…

There is no need to be afraid of inflation

Fear and concern about inflation is unfounded. The long-term consequences of central bank policy are probably to be seen in other areas, but they can have just as many consequences as permanently high inflation. Once again, the fear of inflation is on the rise. This time, as repeatedly in recent years, the triggers are the central banks‘ major rescue programmes. All over the world, interest rates were cut, liquidity was pumped into the markets and assets were bought. In the Corona crisis, these programs in the larger countries generally far exceeded the trillion mark. An end is not in sight. The enormous commitment of central banks is not a new phenomenon. Already after the financial and debt crisis, central banks saved the global economy from greater damage with programmes of this kind. Even then, there were always phases with greater concern about a rapid rise in inflation, but inflation did…

Zentralbanken geben Vollgas und Finanzmärkte verlieren Bodenhaftung

Die Corona-Pandemie hat zwar in unterschiedlichem Tempo, aber letztlich doch die ganze Welt erfasst. Die breite Bevölkerung pendelt zwischen Ignoranz und Hysterie, Regierungen und Notenbanken haben ihren Handlungsauftrag in dieser Krise aber angenommen. Praktisch alle hatten ihren „Whatever it takes“ Moment – nur die Auslegung dessen, was notwendig ist, unterscheidet sich. Der Wunsch nach Abfederung des Wachstumseinbruchs, Stabilisierung des Vertrauens der Finanzmärkte und Sicherung der Kreditversorgung hat die Regierungen und Notenbanken weltweit auf den Plan gerufen. So unterschiedlich die Ausgangslage vor Ausbruch der Pandemie auch war, haben inzwischen fast alle Notenbanken der von uns betreuten Währungsräume einschneidende Lockerungsmaßnahmen beschlossen. Wir sehen hierbei eine Mischung aus Verbilligung der Zentralbankliquidität (Zinssenkungen) und Ausweitung der Beschaffungswege (neue Fazilitäten, Erweiterung der Sicherheiten). Die umfangreichsten und teilweise umstrittensten Lockerungsmaßnahmen gab es fraglos von der EZB und der Fed. Die Geldpolitik in den kleineren Ländern ist insgesamt auch von einem starken Expansionsgrad gekennzeichnet, allerdings mit unterschiedlichem…

Central banks keep going

This week, central banks in Japan, the US and the euro area discussed and announced their decisions. The tone of all three central banks is that all monetary policy forces will be deployed to support the economy. The bond purchase programs will continue unchanged and the volume will be increased if necessary. Liquidity will continue to be made available in abundance and central banks will accept an ever wider range of collateral to avoid bottlenecks. The Fed has also expanded direct access for companies to central bank liquidity. The ECB has also decided to further ease monetary policy. With the introduction of PELTROs (Pandemic Emergency Longer-term Refinancing Operations) the key interest rate was de facto lowered by 25 basis points and is now at minus 0.25%, although the refinancing rate has not been officially changed. The key interest rates of all central banks thus remain at 0%. The new crisis…

Corona virus: Concerted central bank action could be imminent

In the meantime, there are growing signs that the major central banks, the Fed, ECB, BoJ and BoE, could take measures in view of the spread of the corona virus. This could involve interest rate cuts as well as increases in purchasing programs. The risks for the global economy have undoubtedly increased. The quarantine measures and production interruptions should have a noticeable impact on the global economy. In particular, countries that are heavily dependent on exports, such as Germany, are likely to suffer more from the economic activity that has been paralyzed in some areas. The United States, on the other hand, will probably be only slightly affected by the negative consequences of the virus epidemic, although a complete economic decoupling will not be possible. Ultimately, however, interest rate cuts and/or concerted action by central banks are unlikely to have a positive impact on the real economic environment. Thus, supply…

FOMC: Fed ensures liquidity supply

The clear message from the US Federal Reserve last night is that the current interest rate level is appropriate. The current monetary policy stance should strengthen economic growth and support a return to the 2% inflation target. Against this background, the Fed’s Monetary Policy Committee left the key rate corridor unchanged at 1.5% to 1.75% at its meeting yesterday. The key rate decision was taken unanimously. This had been unanimously expected by market participants. Despite the unchanged level of key rates, other important monetary policy decisions were taken. For example, the interest rate for excess reserves (Interest on Excess Reserves IOER) was raised by five basis points as expected. This adjustment is primarily to be understood as a technical measure to ensure that the IOER and the effective Fed funds rate are in the middle of the targeted interest rate corridor. It was also announced that repo transactions would continue…

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