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☆ Euro zone inflation could get stuck above target: ECB's Nagel
▼ + stars: | 2023-04-14 | by ( ) www.reuters.com time to read: +1 min

"Rather, in my opinion, further interest rate hikes will be required." "Risks to price stability are currently tilted to the upside," Nagel said. "It is not a given that we will return to price stability over the medium term." Nagel called for more policy tightening even as he acknowledged that the vast majority of the 350 basis points of moves since July have yet to feed through to prices. He said that the ECB looked at how key variables reflected policy tightening and concluded about a month ago that pass-through to GDP was around 30% while to inflation roughly 20%.

☆ Exclusive: Calls grow for quick end to ECB bond-scheme reinvestment
▼ + stars: | 2023-04-14 | by ( Balazs Koranyi | ) www.reuters.com time to read: +3 min

It is already letting 15 billion euros worth of these bonds expire each month. The sources said the ECB should not implement a hard stop, however, and could stay flexible to react to episodes like last month's banking sector volatility. But when markets are calm, like now, the ECB should let all maturing debt expire, they said. Redemptions fluctuate but about 148 billion euros' worth of debt expires in the second half of the year, so a full reinvestment stop would see an extra 58 billion euros' worth of maturities on top of the currently scheduled 15 billion euros per month. The sources said that once these reinvestments end, the next discussion would be about reinvestments in the 1.68 trillion euro Pandemic Emergency Purchase Programme, which are set to continue until the end of 2024.

☆ ECB needs more rate hikes and faster balance sheet cuts, Wunsch says
▼ + stars: | 2023-04-14 | by ( Balazs Koranyi | ) www.reuters.com time to read: +3 min

WASHINGTON, April 14 (Reuters) - The European Central Bank should speed up the reduction of its balance sheet and could stop reinvesting cash from debt maturing in its largest bond buying scheme to complement further interest rate hikes, Belgian policymaker Pierre Wunsch said. Fighting stubborn inflation, the ECB has raised rates at its fastest pace on record and has been shrinking its bloated balance sheet, all in the hope that more expensive borrowing will thwart demand and curb inflation. "The market has reacted very well, and our balance sheet is still too big," he said. "If there's another upside surprise in core inflation and the (ECB's quarterly) lending survey doesn't look too bad, we might have to do 50," he said. "What is really concerning is that in December we projected core inflation stabilising at 5% before its decline," Wunsch said.

☆ Exclusive: ECB policymakers converging on 25-bps rate hike in May - sources
▼ + stars: | 2023-04-13 | by ( Balazs Koranyi | ) www.reuters.com time to read: +3 min

The ECB has raised rates by at least 50 basis points each at six successive meetings -- the fastest pace on record -- to fight stubbornly high inflation. The sources said that some are advocating no change in May - mostly the same Southern European policymakers who did not support last month's 50 basis point increase, while others - also a small group - argue for another 50 basis point hike. Klaas Knot of the Netherlands said it was unclear whether 50 basis points would be needed or if 25 was enough. Slovakia's Peter Kazimir said the ECB could perhaps slow down the pace of its increases while Austria's Robert Holzmann meanwhile backed another 50 basis point move. Markets currently price 25 basis point hikes each in May and June, while a third such increase is fully priced in by September.

☆ Exclusive: ECB policymakers converging on 25-bps rate hike in May , sources say
▼ + stars: | 2023-04-13 | by ( Balazs Koranyi | ) www.reuters.com time to read: +3 min

Reuters GraphicsNOTHING 'BROKEN' YETInternational economic officials gathering in Washington this week for the IMF and World Bank spring meetings can take some comfort that pandemic-era risks are continuing to diminish. An aggressive year of central bank rate hikes hasn't yet "broken" any of the economies involved, with the U.S. unemployment rate at 3.5%, near its lowest level since the late 1960s. Still, that terminal rate remains unclear, and the end of synchronized tightening by the Fed, BoE and European Central Bank doesn't mean tight monetary policy is going away. Wages, services and food are driving price growth to the point that the ECB's attention has shifted almost entirely to underlying inflation on fears that rapid price growth is at risk of getting stuck above target. The U.S. central bank is expected to increase its benchmark overnight interest rate by another quarter of a percentage point next month, and signal whether more hikes may be warranted.

☆ ECB may need to hike rates again in May - Lane
▼ + stars: | 2023-04-06 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, April 6 (Reuters) - The European Central Bank will need to raise interest rates again in May if inflation develops along the path seen in the bank's March economic projections, ECB chief economist Philip Lane told the Cyprus News Agency. The ECB has raised rates by a combined 350 basis points since July but did not provide specific guidance for its May 4 meeting, arguing that turbulence in the financial sector required extra caution. "However, we need to be data-dependent about the assessment of whether that baseline still holds true at the time of our May meeting." Largely repeating his stance, Lane argued that the May decision will depend on the inflation outlook, the bank's assessment of underlying price dynamics and on how quickly past rate hikes are impacting the economy. Although bank shares are down by about a tenth over the past month, volatility has receded and underlying inflation, a key worry for policymakers, continues to accelerate, strengthening the case for rate hikes.

☆ EU's new crypto asset rules don't go far enough - ECB's McCaul
▼ + stars: | 2023-04-05 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, April 5 (Reuters) - The European Union's proposed regulations for crypto assets do not go far enough, and safeguards need to be strengthened to capture risks adequately, European Central Bank supervisory board member Elizabeth McCaul said on Wednesday. The European Parliament is set to vote on the Markets in Crypto-assets (MiCA) bill later this month, taking a big step in providing oversight of the crypto world after a series of scandals and collapses. "While the new Basel standard and MiCA are important milestones, I am afraid they will not be sufficient on their own," McCaul said in a blog post. Another issues is how the size of crypto-asset service providers is measured because the now-collapsed crypto exchange FTX would not have counted as significant given how the firm was organised. The same goes for conflicts of interest, which must be identified across the group and at affiliated entities, McCaul said.

☆ Explainer: Oil price surge changes ECB narrative only at the margins
▼ + stars: | 2023-04-03 | by ( ) www.reuters.com time to read: +4 min

The following examines how higher crude prices - which jumped around 5.5% on Monday following the OPEC+ decision - could impact ECB policy. IS AN OIL PRICE SURGE INFLATIONARY? Part of the issue is that high energy prices slow growth further out and thus become deflationary because they reduce households' and businesses' purchasing power. "The case for more ECB rate hikes is still intact," UniCredit said in a note. If high energy prices spook the Fed, rate-cut bets will unwind and push up the dollar.

☆ German inflation eases less than expected in March
▼ + stars: | 2023-03-30 | by ( ) www.reuters.com time to read: +2 min

German consumer prices, harmonised to compare with other European Union countries, rose by a more-than-anticipated 7.8% on the year in March, preliminary data from the federal statistics office showed on Thursday. Analysts had expected harmonised data to increase by 0.8% on the previous month and grow by 7.5% on an annual basis. According to non-harmonised standards, German consumer prices rose 7.4% on the year in March and 0.8% on the month. This follows an inflation rate of 8.7% in February and January. The decline in the inflation rate was entirely driven by a slowdown in energy prices, which rose only 3.5% compared with March 2022, when energy prices soared following Russia's invasion of Ukraine.

☆ Euro zone underlying inflation sticky, ECB's Schnabel says in Washington
▼ + stars: | 2023-03-29 | by ( ) www.reuters.com time to read: +2 min

WASHINGTON, March 29 (Reuters) - Underlying inflation in the euro zone is proving sticky and the recent fall in energy costs may not pull it down as fast as some expect, European Central Bank board member Isabel Schnabel said on Wednesday, highlighting the bank's chief concern. Overall inflation in the 20 nations sharing the euro currency is falling quickly but core prices, which exclude volatile fuel and food costs, is still rising, suggesting rapid price growth could prove durable and difficult to break. Schnabel, head of the ECB's market operations, said last year's energy price spike seeped into the broader economy quickly but the reversal may take longer. Schnabel said the ECB has some flexibility in reaching its 2% target and did not want to create needless pain by acting too quickly. Conservative policymakers have said underlying inflation is now increasingly driven by domestic factors, particularly more expensive services, and they are wary of wage growth, which at 5-6% lags inflation but remains inconsistent with the ECB's 2% inflation target.

☆ ECB rates will need to rise but possibly at a slower pace - policymakers
▼ + stars: | 2023-03-29 | by ( ) www.reuters.com time to read: +3 min

FRANKFURT, March 29 (Reuters) - European Central Bank interest rates will likely have to rise further to contain inflation, policymakers said on Wednesday, but at least one outspoken conservative floated the idea of a slowdown in the pace of increases. ECB chief economist Philip Lane, who makes the formal policy proposals to his 25 colleagues, said that his baseline is for the turmoil to dissipate and then rates would need to rise several times. "If the financial stress we see is non-zero, but turns out to be still fairly limited, interest rates will still need to go up." Slovak central bank chief Peter Kazimir, a proponent of rapid rate increases, meanwhile made the case for slower rises following three straight 50-basis point hikes. Reporting by Balazs Koranyi, Jan Lopatka, Jason Hovet and Robert Muller; Editing by Toby ChopraOur Standards: The Thomson Reuters Trust Principles.

March 28 (Reuters) - Immediate investor concerns over the banking sector eased on Tuesday, lifting stock prices, with the European Central Bank's supervisory chief saying recent sector volatility underscored the need to step up regulatory scrutiny. Credit Suisse (CSGN.S) shares rose 1.7%. Top U.S. banking regulators said on Monday they planned to tell Congress that the overall financial system remains on a solid footing after recent bank failures, but will comprehensively review their policies in a bid to prevent future collapses. Regional U.S. lender First Citizens BancShares on Monday scooped up the assets of SVB, in a vote of confidence for the battered banking sector that prompted a rally in bank shares. Bailey said the stresses which led to a crisis in confidence in Credit Suisse were down to specific issues in Switzerland's second-largest bank.

☆ ECB's Enria says market nervousness is a concern
▼ + stars: | 2023-03-28 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, March 28 (Reuters) - Recent volatility in Deutsche Bank (DBKGn.DE) shares was concerning as it showed investors were on edge and could be spooked by moves in the small market for credit default swaps (CDS), European Central Bank supervisor Andrea Enria said on Tuesday. The German bank's shares tumbled last Friday as the cost of insuring its debt against the risk of default jumped to a more than four-year high, intensifying worries about the health of Europe's financial sector. Enria said the CDS market is relatively small and illiquid, but that a selloff there could have broader ramifications for the much larger share market. "What concerned me really was the amount of nervousness, disquiet that I perceived in the market and among investors," Enria told a conference in Frankfurt. Enria argued that central clearing for credit default swaps would improve transparency, reducing the risk of volatility.

☆ Euro zone lending slows again in Feb, ECB says
▼ + stars: | 2023-03-27 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, March 27 (Reuters) - Bank lending to euro zone companies slowed for the fourth straight month as an economic downturn and increased caution from lenders appear to be taking their toll, European Central Bank data showed on Monday. Lending to businesses in the 20 nation currency bloc expanded by 5.7% in February after a 6.1% rise a month earlier while household credit growth slowed to 3.2% from 3.6%. Lending has slowed sharply in recent months on an economic downturn and the fastest rate hikes by the ECB on record, with surveys pointing to even weaker lending figures in the months ahead. The monthly flow of loans to companies was a negative 2.6 billion euros after a mere 1.4 billion euro expansion a month earlier. Growth in the M3 measure of money circulating in the euro zone meanwhile slowed to 2.9% from 3.5%, coming below expectations for 3.2% in a Reuters survey.

☆ ECB may copy Bank of England's way of steering rates: Schnabel
▼ + stars: | 2023-03-27 | by ( ) www.reuters.com time to read: +2 min

NEW YORK, March 27 (Reuters) - The European Central Bank could take a leaf from the Bank of England's book as it looks for new ways of managing liquidity in the banking sector and steering short-term interest rates on the market, ECB board member Isabel Schnabel said on Monday. The ECB is now rapidly shrinking its balance sheet but this is unlikely to fall back to its level of before the 2008-2009 global financial crisis, so policymakers are now studying a new way to steer short-term interest rates in a new normal. Using the same rate for providing and remunerating reserves ensures that money market rates will trade closely to the policy rate, Schnabel argued. Another benefit of such a demand-driven framework is that it offers more flexibility on how the central bank provides reserves. "A third benefit is that the Bank of England’s approach may potentially lead to a leaner balance sheet depending on banks’ demand for reserves," Schnabel said.

Two of Germany's largest airports, Munich and Frankfurt, suspended flights, while long-distance rail services were cancelled by rail operator Deutsche Bahn (DBN.UL). "Millions of passengers who depend on buses and trains are suffering from this excessive, exaggerated strike," a Deutsche Bahn spokesperson said on Monday. At the same time, in France they go on strike all the time about something," said passenger Lars Boehm. The head of the Bundesbank Joachim Nagel said last week Germany needed to avoid a price-wage spiral. "Despite signs of second-round effects, we have not observed a destabilising price-wage spiral in Germany so far."

☆ Analysis: End of central bank rate hikes now firmly on the horizon
▼ + stars: | 2023-03-23 | by ( Balazs Koranyi | ) www.reuters.com time to read: +5 min

The U.S. Federal Reserve, the European Central Bank and the Bank of England all raised rates as expected in the last week, but each of them signalled caution about their next move, leaving investors unsure where borrowing costs are going. Central banks have also been quick. This is lightning-fast by central banking standards and ECB's Knot said policymakers needed to have a deeper look at how it is affecting lenders. Combined, these factors suggest that big central banks are nearly done, and that upcoming rate moves may be their last. If so, our view is that it could indeed substitute for further rate hikes," Michael Gapen at Bank of America said.

Fed Chairman Jerome Powell sought to reassure investors about the soundness of the banking system, saying that the management of Silicon Valley Bank "failed badly," but that the bank's collapse did not indicate wider weaknesses in the banking system. "These are not weaknesses that are running broadly through the banking system," he said, adding that the takeover of Credit Suisse seemed to have been a positive outcome. The Federal Open Market Committee policy statement also said the U.S. banking system is "sound and resilient." The much-anticipated rate cut by the Fed, which had delivered eight previous rate hikes in the past year, sought to balance the risk of rampant inflation with the threat of instability in the banking system. The banking sector has been in turmoil after California regulators on March 10 closed Silicon Valley Bank in the largest U.S. bank failure since the 2008 financial crisis.

The latest move to restore calm to restive regional bank stocks came as Pacific Western Bank (PACW.O), one of the regional lenders caught up in the market volatility, said it had raised $1.4 billion from investment firm Atlas SP Partners. While that deal brought some respite to battered banking stocks, First Republic (FRC.N) remains firmly in the spotlight. For now, the rescue of Credit Suisse appears to have calmed the worst fears of systemic contagion, boosting shares of European banks (.SX7P) and U.S. lenders (.SPXBK). Reuters Graphics Reuters Graphics'HEAD IN SAND'The wipeout of Credit Suisse's Additional Tier-1 (AT1) bondholders has sent shockwaves through bank debt markets. Seeking to boost confidence among investors rattled by its $3 billion Credit Suisse rescue, UBS said on Wednesday it would buy back 2.75 billion euros ($2.96 billion) worth of debt it issued less than week ago.

March 22 (Reuters) - U.S. authorities are set to explore ways to bolster financial stability, along with steps to tackle the problems facing First Republic Bank, as central banks assess whether turmoil in banking makes interest rate rises less pressing. SVB's collapse kicked off a tumultuous 10 days for banks which led to the 3 billion Swiss franc ($3.2 billion) Swiss engineered takeover of Credit Suisse by rival UBS (UBSG.S). While that deal brought some respite to battered banking stocks, U.S. lender First Republic (FRC.N) remains firmly in the spotlight. Reuters Graphics Reuters Graphics'HEAD IN SAND'The wipeout of Credit Suisse's Additional Tier-1 (AT1) bondholders has sent shockwaves through bank debt markets. For now, the Swiss bank rescue appears to have assuaged the worst fears of systemic contagion, boosting shares of European banks (.SX7P) and U.S. lenders (.SPXBK).

But an unexpected jump in UK inflation last month led investors to bet heavily that the Bank of England will raise interest rates by at least another 25 bps on Thursday. SVB's collapse kicked off a tumultuous 10 days for banks which led to the 3 billion Swiss franc ($3.2 billion) Swiss regulator-engineered takeover of Credit Suisse by rival UBS. While that deal brought some respite to battered banking stocks, U.S. lender First Republic remains firmly in the spotlight. First Republic (FRC.N) shares fell 9% in extended trade on Tuesday, having surged as much as 60% at one stage. For now, the Swiss bank rescue appears to have assuaged the worst fears of systemic contagion, boosting shares of European banks (.SX7P) and U.S. lenders (.SPXBK).

☆ ECB to look for signs of stress but banking crisis unlikely
▼ + stars: | 2023-03-22 | by ( ) www.reuters.com time to read: +3 min

Summary Lagarde says rate hikes are just starting to biteLane says full-blown banking crisis is unlikelyFRANKFURT, March 22 (Reuters) - The European Central Bank will watch for signs of stress in bank lending from the ongoing financial turmoil but a full-blown crisis is unlikely for now, the ECB's top brass said on Wednesday. But that's pretty much a tail scenario at this point in time," Lane told a conference on Wednesday. "For inflationary pressures to ease, it is important that our monetary policy works robustly in the restrictive direction," she said. Lane said he expected core prices to ease over time as lower fuel costs filter through to other sectors. Reporting By Francesco Canepa and Balazs Koranyi; Editing by Toby Chopra and Christina FincherOur Standards: The Thomson Reuters Trust Principles.

☆ ECB to watch bank rates for signs of stress, Lagarde says
▼ + stars: | 2023-03-22 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, March 22 (Reuters) - The European Central Bank's interest rate increases are just starting to take effect on the economy but their transmission may become stronger as a result of the banking turmoil, ECB President Christine Lagarde said on Wednesday. Lagarde said the ECB's actions to raise borrowing costs may be magnified if banks become more risk averse and start demanding higher rates when lending -- likely implying the central bank would need to increase its own rates by less. "For inflationary pressures to ease, it is important that our monetary policy works robustly in the restrictive direction," she said. The ECB has increased the rate it pays on bank deposits by a record-breaking 350 basis points to 3% since July and financial markets expect a further increase to 3.5% later this year. Reporting By Francesco Canepa and Balazs Koranyi; Editing by Toby Chopra and Christina FincherOur Standards: The Thomson Reuters Trust Principles.

☆ Banks borrow only token amounts via Fed's dollar swap facility
▼ + stars: | 2023-03-20 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, March 20 (Reuters) - Global banks borrowed only token amounts on Monday via an enhanced, seven-day dollar swap unveiled by the U.S. Federal Reserve late on Sunday to ease funding stress in global markets. Two banks in Switzerland borrowed $101 million on Monday while in the euro zone, a single bank borrowed $5 million. Such swap facilities have been a constant feature of global central bank cooperation for years but demand for funds outside acute crisis periods has been negligible. Banks on aggregate have had ample liquidity for years, and many suffer from sitting on too much cash rather than too little. Reporting by Balazs Koranyi Editing by Francesco Canepa and by Kevin LiffeyOur Standards: The Thomson Reuters Trust Principles.

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