Central banks / bond markets

More savings in Germany

The environment for private household investment in Germany remains difficult. While the ECB’s announcement in September last year that it would phase out its net bond purchases in stages still raised hopes that the low-interest phase would subside, these hopes evaporated again at the turn of the year. With the slowdown in economic growth in Germany and Europe and the intensification of the trade conflict between the USA and China, monetary policy normalization receded into the distance. The average current yield on fixed-interest securities has been falling for months – with a negative sign since June. While expansive monetary policy and low interest rates are pushing up demand for equities as an investment alternative, trade disputes and a gloomy economic outlook are weighing on the sales and earnings prospects of listed companies. This limits price potential and increases volatility. In the first quarter of the current year, private households once…

ECB, banks and negative interest rates

The ECB wants to cut interest rates further. The Governing Council firmly believes that even lower interest rates will ultimately lead to higher inflation or at least higher inflation expectations. However, negative interest rates entail some economic costs. Excess liquidity in the euro zone banking system currently stands at around 1,800 billion euros. This means that the banks are paying the ECB around 7 billion euros in interest per year. Banks are affected to very different degrees by the negative deposit rate, as excess liquidity is unevenly distributed in the euro zone. The majority (35%) of the money parked at the ECB comes from German banks. French institutions also account for a considerable share, just over 25%. In contrast, Italian (5%) or Spanish (4%) banks park only very little liquidity with the central bank. If the deposit rate of minus 0.4% is further reduced, interest payments will continue to rise…

Central banks: trapped between politics and independence

A great achievement of the late 20th century was the independence of the central banks in the western industrial nations. The US Federal Reserve has been independent since its foundation in 1913, and the Bundesbank, which succeeds the Bank deutscher Länder, was created in 1957. In the course of the 1990s, other European countries also released their central banks into independence under the Maastricht Treaty for the preparation of the euro zone. In 1998, the European Central Bank became an independent central bank. The Bank of England became independent as early as 1997, while the Bank of Japan has operated autonomously since 1998. This was not always the case. The older central banks in particular, such as the Bank of England, were actually only a downstream authority at the beginning of their establishment, mainly concerned with the supply of money to the economy. Money creation taken out of the hands…

ECB changes inflation management

If the recent press conference by ECB President Mario Draghi showed anything, it was that the monetary authorities are anything but satisfied with the inflation trend. Inflation expectations, in particular, are a cause for concern as they have now fallen below the levels that would have been reached at the time of the launch of the The main factors were the bond purchases and the increase in bond purchases from EUR 60 billion to EUR 80 billion. The monetary authorities have taken various measures to ensure that inflation expectations do not lose their roots. Only in June was the forward guidance extended to mid-2020. In addition, the ECB had new TLTROs on the way. However, all these measures seem to have had little effect, as inflation expectations have continued to fall. This development could, in the final analysis, indicate that market participants fear that the ECB has lost control over…

US Federal Reserve remains reasonable

US Federal Reserve remains reasonable As expected by most market participants, the US Federal Reserve has lowered its key interest rate by 25 basis points. At the same time, it ended the balance sheet reduction prematurely. Overall, the Fed has thus loosened the monetary policy environment slightly, but avoided classifying this as a trend reversal. It has thus resisted the high political pressure and continued its relatively sensible monetary policy. The statement published after the interest rate decision sounds optimistic and hardly changed. For example, the Fed has attested that economic growth has continued to be moderate and that consumer spending has increased. Market-based inflation expectations remain low. The effects of the cooling global economy and subdued inflationary pressure explain the 25 basis point cut in key interest rates. Now the developments will be „further observed“, which is a linguistic disarmament compared to the phrase „closely observed“, which usually signals…

ECB surprises with triple jump

The ECB adjusted its forward guidance at yesterday’s meeting. While the monetary policy statement previously stated that key interest rates would remain at the current level until at least the middle of next year, this outlook has now been extended to include the possibility of a low level of key interest rates. A reduction in the deposit rate is therefore only a matter of time. It should also be emphasised that the central bank superiors instructed the ECB staff to draw up proposals for the design of a tiered deposit rate. According to Draghi, a possible interest rate cut would be accompanied by mitigation measures. The ECB Committees are also mandated to examine possibilities for revitalising the Bond Purchase Programme (APP). In this context, Mr Draghis has pointed out that the ECB may also be targeting new asset classes. Even though the guardians of the currency have hesitated to lower…

1 2 24