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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Euro zone loan slump puts onus on ECB to keep rates low

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Mortgage applications fall as rates hit 2013 high: MBA

Home owners speak with Bank of America representatives as they try to get home loan modifications during the Neighborhood Assistance Corporation of America event in Phoenix, February 4, 2011.

Credit: Reuters/Joshua Lott

NEW YORK | Wed Aug 28, 2013 7:06am EDT

NEW YORK (Reuters) - Applications for U.S. home loans fell for a third straight week as average mortgage rates hit their highest level this year, although demand for purchase loans increased, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.5 percent in the week ended August 23, after sliding 4.6 percent the prior week.

The decline came as 30-year mortgage rates rose 12 basis points to 4.80 percent, the highest they have been so far this year, according to MBA data.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Borrowing costs have climbed by more than a percentage point since late May on the view that the Federal Reserve will soon reduce its monthly bond purchases, which have kept a ceiling on rates.

The Fed began the bond purchasing program nearly a year ago to boost a sluggish recovery in the U.S. economy.

Higher rates have dissuaded borrowers from refinancing existing home loans. The refinance index fell 5.4 percent last week, and the refinance share of total mortgage activity slid to 60 percent, the lowest since April of 2011.

The gauge of loan requests for home purchases, a leading indicator of home sales, held up better, rising 2.4 percent.

Housing has been a bright spot in the U.S. recovery, with prices rising steadily since early 2012. But economists expect the pace of that increase to slow as the year winds down.

A separate report last week showed sales of new single-family homes fell sharply in July to their lowest level in nine months.

That has injected some uncertainty into the debate about when the Fed will start slowing its stimulus. Markets largely expect the Fed to pull back next month, though many analysts say the U.S. central bank will think twice about higher long-term interest rates if there is evidence the rates are hurting housing.

Still, rates remain low by historical standards and most economists do not expect the higher costs to end the recovery altogether. In the short-term, it could also spur potential buyers to act before rates rise further.

(Reporting by Steven C. Johnson; Editing by Leslie Adler)

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BoE's Bean - Guidance is clear signal on interest rates: report

The Bank of England is seen in the City of London August 7, 2013.

Credit: Reuters/Toby Melville

LONDON | Mon Aug 26, 2013 10:19am BST

LONDON (Reuters) - The Bank of England is sending a "clear signal" that interest rates are not likely to rise imminently with its new forward guidance plan, Deputy Governor Charlie Bean said in an interview published on Monday.

The central bank is "communicating not just to market participants, but to people, to households and businesses, to give them a clear signal that interest rates are not likely to rise imminently," Bean told Bloomberg.

"What we're trying to do is explain as clearly as we can, what are the factors that will guide policy going forward, recognising the world is an uncertain place," he said, adding he was "a little bit" surprised at the reaction to the plan in financial markets which have pushed up yields on British government bonds

(Writing by Li-mei Hoang, editing by William Schomberg)

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German finance minister sees signs ECB will raise rates

German Finance Minister Wolfgang Schaeuble listens to a news conference in the Greek ministry of finance in Athens July 18, 2013.

Credit: Reuters/John Kolesidis

BERLIN | Fri Aug 23, 2013 2:50am EDT

BERLIN (Reuters) - German Finance Minister Wolfgang Schaeuble said in a newspaper interview on Friday the European Central Bank (ECB) has made clear it will raise interest rates again once the economy improves and that he welcomed that prospect.

"Low rates are above all an expression of insecurity on debt markets. That cannot last forever - even if it is a relief to the federal budget," he said. "The central bank has announced it will raise rates again when the economy improves. That is good."

ECB chief Mario Draghi actually said after the last meeting on rates on August 1 that rates will remain low for some time. The ECB has based this 'forward guidance' on the inflation outlook remaining subdued, and growth weak.

"The Governing Council confirms that it expects the key ECB rates to remain at present or lower levels for an extended period of time," Draghi said after the ECB's August 1 meeting.

But some economists said the absence of a discussion among ECB council members about cutting rates contrasted with the previous month and could be seen as a modestly hawkish signal.

(Reporting by Stephen Brown; Editing by Paul Carrel)

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U.S. mortgage applications fall as rates push higher: MBA

An empty post where a ''for sale'' sign used to hang is seen outside a home in Brentwood, New York February 10, 2012.

Credit: Reuters/Shannon Stapleton

NEW YORK | Wed Aug 21, 2013 7:04am EDT

NEW YORK (Reuters) - Applications for U.S. home loans fell for a second straight week and higher interest rates reduced refinancing activity, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 4.6 percent in the week ended August 16.

The decline came as 30-year mortgage rates rose 12 basis points to 4.68 percent, matching the year's high first hit in July.

Interest rates spiked in late May after the Federal Reserve signaled it could begin scaling back its $85 billion in monthly bond purchases by the end of the year, with investors now betting it could happen as soon as September.

Prospects of the Fed tapering its stimulus has made financial markets jittery. This week, U.S. benchmark 10-year Treasury yields hit a two-year high of 2.9 percent, more than a percentage point above their level in May.

Demand to refinance existing loans has declined as rates have climbed. The refinance index shed 7.7 percent last week, its biggest weekly fall since late June, and is down 62.1 percent since peaking in the week ending May 3. The refinance share of total mortgage activity slipped to 62 percent from 63 percent the prior week.

Rates remain fairly low by historical standards, however, and the gauge of loan requests for home purchases, a leading indicator of home sales, rose 1.2 percent, after falling 5.4 percent the previous week.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

(Reporting By Steven C. Johnson)

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U.S. mortgage applications fall as rates push higher: MBA

An empty post where a ''for sale'' sign used to hang is seen outside a home in Brentwood, New York February 10, 2012.

Credit: Reuters/Shannon Stapleton

NEW YORK | Wed Aug 21, 2013 7:04am EDT

NEW YORK (Reuters) - Applications for U.S. home loans fell for a second straight week and higher interest rates reduced refinancing activity, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 4.6 percent in the week ended August 16.

The decline came as 30-year mortgage rates rose 12 basis points to 4.68 percent, matching the year's high first hit in July.

Interest rates spiked in late May after the Federal Reserve signaled it could begin scaling back its $85 billion in monthly bond purchases by the end of the year, with investors now betting it could happen as soon as September.

Prospects of the Fed tapering its stimulus has made financial markets jittery. This week, U.S. benchmark 10-year Treasury yields hit a two-year high of 2.9 percent, more than a percentage point above their level in May.

Demand to refinance existing loans has declined as rates have climbed. The refinance index shed 7.7 percent last week, its biggest weekly fall since late June, and is down 62.1 percent since peaking in the week ending May 3. The refinance share of total mortgage activity slipped to 62 percent from 63 percent the prior week.

Rates remain fairly low by historical standards, however, and the gauge of loan requests for home purchases, a leading indicator of home sales, rose 1.2 percent, after falling 5.4 percent the previous week.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

(Reporting By Steven C. Johnson)

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U.S. mortgage applications fall as rates push higher: MBA

An empty post where a ''for sale'' sign used to hang is seen outside a home in Brentwood, New York February 10, 2012.

Credit: Reuters/Shannon Stapleton

NEW YORK | Wed Aug 21, 2013 7:04am EDT

NEW YORK (Reuters) - Applications for U.S. home loans fell for a second straight week and higher interest rates reduced refinancing activity, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 4.6 percent in the week ended August 16.

The decline came as 30-year mortgage rates rose 12 basis points to 4.68 percent, matching the year's high first hit in July.

Interest rates spiked in late May after the Federal Reserve signaled it could begin scaling back its $85 billion in monthly bond purchases by the end of the year, with investors now betting it could happen as soon as September.

Prospects of the Fed tapering its stimulus has made financial markets jittery. This week, U.S. benchmark 10-year Treasury yields hit a two-year high of 2.9 percent, more than a percentage point above their level in May.

Demand to refinance existing loans has declined as rates have climbed. The refinance index shed 7.7 percent last week, its biggest weekly fall since late June, and is down 62.1 percent since peaking in the week ending May 3. The refinance share of total mortgage activity slipped to 62 percent from 63 percent the prior week.

Rates remain fairly low by historical standards, however, and the gauge of loan requests for home purchases, a leading indicator of home sales, rose 1.2 percent, after falling 5.4 percent the previous week.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

(Reporting By Steven C. Johnson)

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Pending home sales pull back in June as rates rise

By Paige Gance

WASHINGTON (Reuters) - Contracts to purchase previously owned U.S. homes fell in June, retreating from a more than six-year high and suggesting rising mortgage rates were starting to dampen home sales.

The National Association of Realtors said on Monday its Pending Homes Sales Index, based on contracts signed last month, decreased 0.4 percent to 110.9. May's index was revised down to 111.3, the highest since December 2006, from a previously reported 112.3.

Economists polled by Reuters had expected signed contracts, which become sales after a month or two, to fall 1.0 percent.

Compared to last year, contracts were up 10.9 percent.

Stocks and bonds mostly ignored the report, but the dollar trimmed earlier losses against the yen.

The housing market has been a bright spot in the economy, providing a buffer from fiscal austerity in Washington. Existing home sales fell in June, but selling prices hit a five-year high in a sign the housing recovery was still on track. In addition, new home sales rose last month.

However, an index from the Mortgage Bankers Association that measures loan applications for home purchases has declined 10 percent since early May, a sign of the toll higher borrowing costs are starting to take.

"Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June," said NAR chief economist Lawrence Yun. "The persistent lack of inventory also is contributing to lower contract signings."

Rates on 30-year fixed rate mortgages have climbed about a full percentage point since early May on expectations the U.S. Federal Reserve may begin scaling back its bond-buying stimulus program as early as September.

"We had such an outsize gain in May and I think what we saw was a good number of people that were trying to beat the punch and pull the trigger on buying that home before mortgage rates rose even further," said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.

Contracts were up in the West, where they reached the highest level since November 2009, but down in the Midwest and South. The index for the Northeast was unchanged.

(Reporting by Paige Gance; Editing by Andrea Ricci)

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Pending home sales pull back in June as rates rise

By Paige Gance

WASHINGTON (Reuters) - Contracts to purchase previously owned U.S. homes fell in June, retreating from a more than six-year high and suggesting rising mortgage rates were starting to dampen home sales.

The National Association of Realtors said on Monday its Pending Homes Sales Index, based on contracts signed last month, decreased 0.4 percent to 110.9. May's index was revised down to 111.3, the highest since December 2006, from a previously reported 112.3.

Economists polled by Reuters had expected signed contracts, which become sales after a month or two, to fall 1.0 percent.

Compared to last year, contracts were up 10.9 percent.

Stocks and bonds mostly ignored the report, but the dollar trimmed earlier losses against the yen.

The housing market has been a bright spot in the economy, providing a buffer from fiscal austerity in Washington. Existing home sales fell in June, but selling prices hit a five-year high in a sign the housing recovery was still on track. In addition, new home sales rose last month.

However, an index from the Mortgage Bankers Association that measures loan applications for home purchases has declined 10 percent since early May, a sign of the toll higher borrowing costs are starting to take.

"Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June," said NAR chief economist Lawrence Yun. "The persistent lack of inventory also is contributing to lower contract signings."

Rates on 30-year fixed rate mortgages have climbed about a full percentage point since early May on expectations the U.S. Federal Reserve may begin scaling back its bond-buying stimulus program as early as September.

"We had such an outsize gain in May and I think what we saw was a good number of people that were trying to beat the punch and pull the trigger on buying that home before mortgage rates rose even further," said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.

Contracts were up in the West, where they reached the highest level since November 2009, but down in the Midwest and South. The index for the Northeast was unchanged.

(Reporting by Paige Gance; Editing by Andrea Ricci)

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