BoE's Carney says rates pressure might trigger more money printing

1 of 3. Bank of England governor Mark Carney addresses business leaders in Nottingham, central England August 28, 2013.

Credit: Reuters/Nigel Roddis/Pool

By David Milliken

NOTTINGHAM, England | Wed Aug 28, 2013 4:24pm BST

NOTTINGHAM, England (Reuters) - Bank of England Governor Mark Carney warned financial markets on Wednesday that the bank would pump more money into Britain's economy if they bet against it and choked off recovery.

In his first speech since taking over the bank, Carney said the recent economic pick-up was broad-based but remained "solid not stellar". He announced a relaxation of rules for banks which could help boost lending.

The initial reaction of investors was muted with market expectations essentially unchanged that the bank will raise interest rates earlier than it has flagged.

Financial markets have challenged the BoE's new plan to keep interest rates on hold for possibly three more years, and Carney spent much of his speech explaining why unemployment was unlikely to fall quickly to the 7 percent level at which the bank would consider tightening monetary policy.

"The upward move in market expectations of where Bank Rate will head in future could, at the margin, feed into the effective financial conditions facing the real economy. The MPC (Monetary Policy Committee) will be watching those conditions closely," Carney said.

"If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further."

Sterling initially weakened but recovered its losses against the dollar and British government bond prices fell after Carney's speech.

Philip Rush, an economist with Nomura, said the comments on more stimulus did not appear to signal any imminent new move.

"Easing is not ruled out if higher rates start to impair recovery but that point does not seem upon us," Rush said. "While higher rates reflect stronger growth, easing would constitute a negative confidence shock - i.e. the opposite of what the BoE is trying to achieve."

The Bank of England spent 375 billion pounds ($582.73 billion) on government bonds between 2009 and last year to try to steer Britain's economy out of the stagnation in the wake of the financial crisis.

Carney said the option of further stimulus was part of the forward guidance plan announced by the BoE earlier this month and which mentioned the possibility of further asset purchases.

He made forward guidance a hallmark of his time running the Bank of Canada before coming to Britain.

Most of the bank's nine top policymakers are opposed to a revival of the bond-buying programme since late last year although it was supported by Carney's predecessor Mervyn King.

And if there were more stimulus the bank would also need to persuade British investors, businesses and households that the BoE can keep its foot on the stimulus pedal for another three years without pushing up already above-target inflation.

That challenge was made all the greater after differences of opinion emerged among the bank's top policymakers.

Martin Weale voted against forward guidance earlier this month. He has since voiced concern about it fuelling inflation.

UNEMPLOYMENT

Carney dedicated much of his speech to explaining why the central bank believed unemployment would fall only slowly, given expected further job losses for public workers and large numbers of part-time workers who want to work full-time.

The BoE estimated only a one-in-three chance of it hitting 7 percent by mid-2015, as markets appeared to believe, he said.

Carney said the BoE remained committed to fighting inflation but it was right for it to allow it to come back down to its 2 percent target only slowly, given the weak state of the economy and temporary factors pushing up price growth.

Carney announced a widening of a planned relaxation of rules on banks and building societies, on condition they meet new requirements on capital buffers.

Under the change, eight major lenders in Britain would be allowed to reduce their required liquid asset holdings - cash and safe but low-yielding investments - by 90 billion pounds if they meet the minimum 7 percent capital requirement, freeing up more money for lending and in turn spurring growth.

In an apparent nod to concerns about the property market heating up again, Carney said the BoE was "acutely aware of the risk of unsustainable credit and house price growth but said gauges of the housing market and household borrowing costs were not at historically high levels.

British house prices are set to rise at their fastest pace in three years in 2013, outstripping inflation and raising concerns that government action may lead to a new price bubble, a Reuters poll found on Wednesday.

Among the risks for the recovery, Carney said a few less well-managed financial institutions still had a long journey to get back to health. He also noted the strain on emerging economies which have seen big outflows of capital back to recovering richer countries and said progress on Europe's debt crisis would remain uneven.

(Additional reporting by London markets and economics teams; writing by William Schomberg; editing by Jeremy Gaunt)

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Bank of England's Carney says rates pressure might trigger more money printing

1 of 2. Bank of England governor Mark Carney gestures during a news conference after addressing business leaders in Nottingham, central England August 28, 2013. The Bank of England may pump more money into Britain's economy if financial markets get ahead of themselves and threaten to choke off its recovery, its governor said on Wednesday.

Credit: Reuters/Nigel Roddis/Pool

By David Milliken

NOTTINGHAM, England | Wed Aug 28, 2013 11:39am EDT

NOTTINGHAM, England (Reuters) - Bank of England Governor Mark Carney warned financial markets on Wednesday that the bank would pump more money into Britain's economy if they bet against it and choked off recovery.

In his first speech since taking over the bank, Carney said the recent economic pick-up was broad-based but remained "solid not stellar". He announced a relaxation of rules for banks which could help boost lending.

The initial reaction of investors was muted with market expectations essentially unchanged that the bank will raise interest rates earlier than it has flagged.

Financial markets have challenged the BoE's new plan to keep interest rates on hold for possibly three more years, and Carney spent much of his speech explaining why unemployment was unlikely to fall quickly to the 7 percent level at which the bank would consider tightening monetary policy.

"The upward move in market expectations of where Bank Rate will head in future could, at the margin, feed into the effective financial conditions facing the real economy. The MPC (Monetary Policy Committee) will be watching those conditions closely," Carney said.

"If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further."

Sterling initially weakened but recovered its losses against the dollar and British government bond prices fell after Carney's speech.

Philip Rush, an economist with Nomura, said the comments on more stimulus did not appear to signal any imminent new move.

"Easing is not ruled out if higher rates start to impair recovery but that point does not seem upon us," Rush said. "While higher rates reflect stronger growth, easing would constitute a negative confidence shock - i.e. the opposite of what the BoE is trying to achieve."

The Bank of England spent 375 billion pounds ($582.73 billion) on government bonds between 2009 and last year to try to steer Britain's economy out of the stagnation in the wake of the financial crisis.

Carney said the option of further stimulus was part of the forward guidance plan announced by the BoE earlier this month and which mentioned the possibility of further asset purchases.

He made forward guidance a hallmark of his time running the Bank of Canada before coming to Britain.

Most of the bank's nine top policymakers are opposed to a revival of the bond-buying program since late last year although it was supported by Carney's predecessor Mervyn King.

And if there were more stimulus the bank would also need to persuade British investors, businesses and households that the BoE can keep its foot on the stimulus pedal for another three years without pushing up already above-target inflation.

That challenge was made all the greater after differences of opinion emerged among the bank's top policymakers.

Martin Weale voted against forward guidance earlier this month. He has since voiced concern about it fuelling inflation.

UNEMPLOYMENT

Carney dedicated much of his speech to explaining why the central bank believed unemployment would fall only slowly, given expected further job losses for public workers and large numbers of part-time workers who want to work full-time.

The BoE estimated only a one-in-three chance of it hitting 7 percent by mid-2015, as markets appeared to believe, he said.

Carney said the BoE remained committed to fighting inflation but it was right for it to allow it to come back down to its 2 percent target only slowly, given the weak state of the economy and temporary factors pushing up price growth.

Carney announced a widening of a planned relaxation of rules on banks and building societies, on condition they meet new requirements on capital buffers.

Under the change, eight major lenders in Britain would be allowed to reduce their required liquid asset holdings - cash and safe but low-yielding investments - by 90 billion pounds if they meet the minimum 7 percent capital requirement, freeing up more money for lending and in turn spurring growth.

In an apparent nod to concerns about the property market heating up again, Carney said the BoE was "acutely aware of the risk of unsustainable credit and house price growth but said gauges of the housing market and household borrowing costs were not at historically high levels.

British house prices are set to rise at their fastest pace in three years in 2013, outstripping inflation and raising concerns that government action may lead to a new price bubble, a Reuters poll found on Wednesday.

Among the risks for the recovery, Carney said a few less well-managed financial institutions still had a long journey to get back to health. He also noted the strain on emerging economies which have seen big outflows of capital back to recovering richer countries and said progress on Europe's debt crisis would remain uneven. ($1 = 0.6435 British pounds)

(Additional reporting by London markets and economics teams; writing by William Schomberg; editing by Jeremy Gaunt)

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Central banks don't need to rush ultra-easy money exit: IMF's Lagarde

International Monetary Fund (IMF) managing director Christine Lagarde gestures as she speaks during the debate ''European Economic Integration: Challenges and Opportunities'' in Vilnius July 18, 2013.

Credit: Reuters/Ints Kalnins

By Alister Bull and Pedro da Costa

JACKSON HOLE, Wyoming | Fri Aug 23, 2013 4:05pm EDT

JACKSON HOLE, Wyoming (Reuters) - Central banks in Europe, the United States and Japan have no need to rush to exit the ultra-easy monetary policies they have put in place to spur growth, IMF Managing Director Christine Lagarde said on Friday.

But in prepared remarks at the U.S. Federal Reserve's annual Jackson Hole policy symposium, she also said that central banks must work with each other to minimize spillover from any withdrawal of policy accommodation that could stifle world growth.

"Policies and policy coordination are not yet where they need to be. Failing to act at the global level, with each country playing its part, could put the global recovery at risk," she said.

Central bankers from around the world are attending the annual conference hosted by the Kansas City Federal Reserve Bank in the mountainous splendor of Wyoming's Grand Teton National Park.

Lagarde, speaking during lunch on the first day of the two-day gathering, noted that concerns about the Fed withdrawing its support had knocked emerging markets in recent days. But she said the exit would proceed more slowly than "feared."

"I do not suggest a rush to the exit. UMP (unconventional monetary policy) is still needed in all places it is being used, albeit longer for some than for others. In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan too, exit is very likely some way off."

TAPER TANTRUM

The Fed expects to being scaling back monthly purchases of bonds later this year. But in June it set off violent swings in global financial markets by just talking about tapering its campaign of so-called quantitative easing.

However, Lagarde said there was no reason central banks could not manage this exit with the same success they had when they launched unconventional policies amid the financial crisis.

These include forward interest rate guidance and quantitative easing, adopted after banks lowered rates nearly to zero to shelter their economies from a severe recession sparked by the collapse of a bubble in the U.S. housing market.

The measures have been controversial, with critics, including some U.S. lawmakers, castigating the Fed for measures that could lead to further bubbles or future inflation.

But Lagarde said the steps had clearly worked for both the countries putting them in place and for other nations that benefited from the global recovery that these actions delivered.

That said, as the Fed, European Central Bank and Bank of Japan begin to normalize policies, emerging economies that have experienced massive capital inflows as a byproduct of their ultra-low interest rates will have to take steps to prepare.

"Exchange rate flexibility will help, but not at all cost. Some market intervention may help moderate exchange rate volatility or short-term liquidity pressures," she said.

Turkey and India have both announced foreign exchange measures after their currencies fell sharply this week, and there has been talk that the top emerging economies could set up currency swap lines to protect others from speculative attack.

Lagarde pointedly said that swap lines "can help" defend emerging markets from exit spillovers, and pledged that the IMF was ready to help with advice, and money, if needed.

"For the Fund's part, we stand ready to provide policy advice and financial support, including on a precautionary basis, through our various instruments," she said.

(Reporting by Alister Bull and Pedro da Costa; Editing by Dan Grebler)

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This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Central banks don't need to rush ultra-easy money exit: IMF's Lagarde

International Monetary Fund (IMF) managing director Christine Lagarde gestures as she speaks during the debate ''European Economic Integration: Challenges and Opportunities'' in Vilnius July 18, 2013.

Credit: Reuters/Ints Kalnins

By Alister Bull and Pedro da Costa

JACKSON HOLE, Wyoming | Fri Aug 23, 2013 4:05pm EDT

JACKSON HOLE, Wyoming (Reuters) - Central banks in Europe, the United States and Japan have no need to rush to exit the ultra-easy monetary policies they have put in place to spur growth, IMF Managing Director Christine Lagarde said on Friday.

But in prepared remarks at the U.S. Federal Reserve's annual Jackson Hole policy symposium, she also said that central banks must work with each other to minimize spillover from any withdrawal of policy accommodation that could stifle world growth.

"Policies and policy coordination are not yet where they need to be. Failing to act at the global level, with each country playing its part, could put the global recovery at risk," she said.

Central bankers from around the world are attending the annual conference hosted by the Kansas City Federal Reserve Bank in the mountainous splendor of Wyoming's Grand Teton National Park.

Lagarde, speaking during lunch on the first day of the two-day gathering, noted that concerns about the Fed withdrawing its support had knocked emerging markets in recent days. But she said the exit would proceed more slowly than "feared."

"I do not suggest a rush to the exit. UMP (unconventional monetary policy) is still needed in all places it is being used, albeit longer for some than for others. In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan too, exit is very likely some way off."

TAPER TANTRUM

The Fed expects to being scaling back monthly purchases of bonds later this year. But in June it set off violent swings in global financial markets by just talking about tapering its campaign of so-called quantitative easing.

However, Lagarde said there was no reason central banks could not manage this exit with the same success they had when they launched unconventional policies amid the financial crisis.

These include forward interest rate guidance and quantitative easing, adopted after banks lowered rates nearly to zero to shelter their economies from a severe recession sparked by the collapse of a bubble in the U.S. housing market.

The measures have been controversial, with critics, including some U.S. lawmakers, castigating the Fed for measures that could lead to further bubbles or future inflation.

But Lagarde said the steps had clearly worked for both the countries putting them in place and for other nations that benefited from the global recovery that these actions delivered.

That said, as the Fed, European Central Bank and Bank of Japan begin to normalize policies, emerging economies that have experienced massive capital inflows as a byproduct of their ultra-low interest rates will have to take steps to prepare.

"Exchange rate flexibility will help, but not at all cost. Some market intervention may help moderate exchange rate volatility or short-term liquidity pressures," she said.

Turkey and India have both announced foreign exchange measures after their currencies fell sharply this week, and there has been talk that the top emerging economies could set up currency swap lines to protect others from speculative attack.

Lagarde pointedly said that swap lines "can help" defend emerging markets from exit spillovers, and pledged that the IMF was ready to help with advice, and money, if needed.

"For the Fund's part, we stand ready to provide policy advice and financial support, including on a precautionary basis, through our various instruments," she said.

(Reporting by Alister Bull and Pedro da Costa; Editing by Dan Grebler)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Central banks don't need to rush ultra-easy money exit: IMF's Lagarde

International Monetary Fund (IMF) managing director Christine Lagarde gestures as she speaks during the debate ''European Economic Integration: Challenges and Opportunities'' in Vilnius July 18, 2013.

Credit: Reuters/Ints Kalnins

By Alister Bull and Pedro da Costa

JACKSON HOLE, Wyoming | Fri Aug 23, 2013 4:05pm EDT

JACKSON HOLE, Wyoming (Reuters) - Central banks in Europe, the United States and Japan have no need to rush to exit the ultra-easy monetary policies they have put in place to spur growth, IMF Managing Director Christine Lagarde said on Friday.

But in prepared remarks at the U.S. Federal Reserve's annual Jackson Hole policy symposium, she also said that central banks must work with each other to minimize spillover from any withdrawal of policy accommodation that could stifle world growth.

"Policies and policy coordination are not yet where they need to be. Failing to act at the global level, with each country playing its part, could put the global recovery at risk," she said.

Central bankers from around the world are attending the annual conference hosted by the Kansas City Federal Reserve Bank in the mountainous splendor of Wyoming's Grand Teton National Park.

Lagarde, speaking during lunch on the first day of the two-day gathering, noted that concerns about the Fed withdrawing its support had knocked emerging markets in recent days. But she said the exit would proceed more slowly than "feared."

"I do not suggest a rush to the exit. UMP (unconventional monetary policy) is still needed in all places it is being used, albeit longer for some than for others. In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan too, exit is very likely some way off."

TAPER TANTRUM

The Fed expects to being scaling back monthly purchases of bonds later this year. But in June it set off violent swings in global financial markets by just talking about tapering its campaign of so-called quantitative easing.

However, Lagarde said there was no reason central banks could not manage this exit with the same success they had when they launched unconventional policies amid the financial crisis.

These include forward interest rate guidance and quantitative easing, adopted after banks lowered rates nearly to zero to shelter their economies from a severe recession sparked by the collapse of a bubble in the U.S. housing market.

The measures have been controversial, with critics, including some U.S. lawmakers, castigating the Fed for measures that could lead to further bubbles or future inflation.

But Lagarde said the steps had clearly worked for both the countries putting them in place and for other nations that benefited from the global recovery that these actions delivered.

That said, as the Fed, European Central Bank and Bank of Japan begin to normalize policies, emerging economies that have experienced massive capital inflows as a byproduct of their ultra-low interest rates will have to take steps to prepare.

"Exchange rate flexibility will help, but not at all cost. Some market intervention may help moderate exchange rate volatility or short-term liquidity pressures," she said.

Turkey and India have both announced foreign exchange measures after their currencies fell sharply this week, and there has been talk that the top emerging economies could set up currency swap lines to protect others from speculative attack.

Lagarde pointedly said that swap lines "can help" defend emerging markets from exit spillovers, and pledged that the IMF was ready to help with advice, and money, if needed.

"For the Fund's part, we stand ready to provide policy advice and financial support, including on a precautionary basis, through our various instruments," she said.

(Reporting by Alister Bull and Pedro da Costa; Editing by Dan Grebler)

View the original article here

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