Renewed ECB easing places further pressure on banks

2019 ◽  
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
Euro Area ◽  
Economic Activity ◽  
Commercial Banks ◽  
Governing Council ◽  
Monetary Policies ◽  
Content Type ◽  
Supervisory Authority ◽  
Forward Guidance

Subject ECB easing. Significance The ECB’s Governing Council announced on September 12 another round of ultra-loose monetary policies. 'As long as necessary' has replaced 'whatever it takes' in departing ECB President Mario Draghi's speech. The lowering of the deposit facility rate for commercial banks from minus 0.40% to minus 0.50% will provide them with additional liquidity at favourable conditions. The ECB has also enhanced its forward guidance by linking future interest rate moves to the inflation outlook. Euro-area economic activity is deteriorating and inflation is far below the ECB’s target. Impacts Fear of losing customers is stopping banks charging negative rates on household deposits, but the debate about this will grow. However, an outright ban, as advocated by Germany’s Federal Financial Supervisory Authority, seems unlikely despite the risk of withdrawals. The ECB’s Governing Council urges that fiscal policy should be the main stimulus, but countries show no sign of coordinating on a package.

The ECB will be slow to expand unconventional policy

2020 ◽  
Keyword(s):  
Climate Change ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
Euro Area ◽  
Economic Recovery ◽  
Fiscal Consolidation ◽  
Governing Council ◽  
Content Type ◽  
Response Options ◽  
Tackle Climate Change

Significance While the Governing Council is divided over the issue, President Christine Lagarde appears to favour more active fiscal policy by member states to stabilise the European economy. Impacts Mixed communication from the ECB Governing Council could undermine market confidence in Lagarde’s presidency. Using monetary policy to tackle climate change will be a key goal for the ECB under Lagarde’s presidency. A disjointed economic recovery across the euro-area will likely increase division within the ECB over its response options. Countries whose economies have been disproportionately affected by COVID-19 will resist calls for fiscal consolidation from 2022 onwards.

scholarly journals The impact of Musharakah financing on the monetary policy in the Islamic economy

2018 ◽  
Vol 3 (3/4) ◽  
pp. 139-152
Author(s):  
Hatem Adela
Keyword(s):  
Economic Theory ◽  
Monetary Policy ◽  
Interest Rate ◽  
Economic Activity ◽  
Methodological Framework ◽  
Mathematical Methods ◽  
Content Type ◽  
Return Rates ◽  
The Interest Rate ◽  
The Impact

Purpose This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods. Design/methodology/approach The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate of Musharakah rather than the interest rate in influence the economic activity and monetary policy. Findings Via replacement, the concept of the interest rate by the return rates of Musharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates of Musharakah through the framework of Islamic economy. Practical/implications The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates of Musharakah on the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics. Originality/value The study aims to contribute to formulating the Islamic economic theory, through the return rate of Musharakah financing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.

Stock prices, exchange rate and interest rate: evidence beyond symmetry

2017 ◽  
Vol 9 (1) ◽  
pp. 2-19 ◽  
Author(s):  
Taufeeq Ajaz ◽  
Md Zulquar Nain ◽  
Bandi Kamaiah ◽  
Naresh Kumar Sharma
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Prices ◽  
Asset Price ◽  
Asymmetric Reaction ◽  
Monetary Policies ◽  
Content Type ◽  
Financial Variables ◽  
Distributed Lag ◽  
Indian Context

Purpose This paper aims to examine the dynamic interactions between monetary and financial variables in the Indian context. Design/methodology/approach In this paper, the authors have applied a recently developed asymmetric autoregressive distributed lag (ARDL) model by Shin et al. (2014), for detecting nonlinearities focusing on the long-run and short-run asymmetries among economic variables. Findings The results point toward the presence of asymmetric reaction of stock prices to changes in interest rate and exchange rate in full sample, as well as in pre-crisis. However, no asymmetry was found in the post-crisis period. The results further suggest that tight monetary policies appear to retard the stock prices, more than easy monetary policies that stimulate them. Practical implications The findings of the study can be helpful in understanding the policy transmission mechanism through asset price channel. Originality/value To the best of the authors’ knowledge, this is the first study that examines the interactions between monetary and financial variables in the Indian context in an asymmetric framework. The findings of this study are quite interesting and are different from several existing studies in the literature.

Excess euro-area liquidity raises bank lending risks

2019 ◽  
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Commercial Banks ◽  
Bank Lending ◽  
Domestic Demand ◽  
Basel Iii ◽  
Content Type ◽  
Reserve Requirements ◽  
Regulatory Standards ◽  
Excess Liquidity

Significance The ECB stopped purchasing bonds this month after running its asset purchase programme (APP) since March 2015. The APP flooded commercial banks with liquidity in excess of their minimum reserve requirements, which they could use to grant new loans. The ECB achieved its goal of increasing credit to the private sector, raising domestic demand and warding off price deflation, but commercial banks have kept large amounts of excess liquidity. Impacts Euro-area banks' average profitability has improved during the APP scheme, but less accommodating monetary policy may reverse this trend. The high prudential ratios the Basel III regulatory standards require should make euro-area banks more resilient to monetary tightening. The ECB's mopping up may pose difficulties to banks relying on excess liquidity to meet the Basel III coverage liquidity ratio.

Even gradual quantitative tightening raises GDP risks

2019 ◽  
Keyword(s):  
Euro Area ◽  
Commercial Banks ◽  
Large Scale ◽  
Sales Tax ◽  
Quantitative Easing ◽  
Content Type ◽  
Balance Sheets ◽  
Liquidity Provision ◽  
The Us ◽  
Repurchase Agreements

Subject Quantitative easing and GDP. Significance The US Federal Reserve (Fed), Bank of Japan (BoJ) and ECB have all conducted quantitative easing (QE) programmes since 2008, purchasing assets from commercial banks on a large scale and without predefined repurchase agreements. These purchases have swollen the balance sheets of the three largest central banks and provided commercial banks with large liquidity buffers. Impacts The pace of the Fed withdrawing liquidity may slow; if US-China conflict worsens or another shock occurs, the Fed may consider reversing. In the euro-area, there are no new liquidity provisions, at a time when German GDP is weakening and Brexit threatens EU growth. New liquidity-provision plans may be hard for the euro-area to agree; if this is off the table, so are liquidity-withdrawing measures. The BoJ may stop scaling back its bond and ETF holdings if markets suffer; the upcoming sales tax rise will also hit spending.

Market nerves roil Turkey and Central Europe

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Markets ◽  
Central Europe ◽  
Euro Area ◽  
Inflection Point ◽  
Oil Prices ◽  
Oil Price ◽  
Content Type ◽  
Policy Guidance

Significance Markets have taken badly the Fed's more hawkish policy guidance for 2017, not expecting such a shift in monetary policy so soon. The shift in US monetary policy comes just as the ECB is preparing the ground for the gradual withdrawal of monetary stimulus. While Turkish assets are the most vulnerable partly because of the severe escalation in political risk, the Polish zloty is also at risk thanks mainly to its status as one of the most liquid EM currencies. Impacts Investors see global financial markets at an inflection point as monetary policy gives way to fiscal policy as the main source of stimulus. This monetary-to-fiscal shift will fuel uncertainty about the direction of asset prices. Rising oil prices will allay concerns about deflation in the euro-area. As major Emerging Europe currencies suffer, the ruble is rising against the dollar amid oil price rises and Trump’s Russia-friendly remarks.

Inflation adds to Brazil’s multiple economic woes

2021 ◽  
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Low Income ◽  
Monetary Policies ◽  
Content Type ◽  
Low Income Families

Significance This is close to the ceiling of the target band of 2.25-5.25% set for this year. In response, the Central Bank last week raised its benchmark interest rate from a record low of 2.00% to 2.75%, the first increase in six years. Impacts Prices that disproportionately affect low-income families are rising faster than overall consumer inflation, increasing inequality. A sooner-than-expected US rate hike would add pressure on Brazil further to increase its own rates. Rising interest rates would hit the economy and make it harder to bring unemployment down. Policymakers will struggle to balance fiscal and monetary policies and the interests of consumers, investors and government.

scholarly journals Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach

2021 ◽  
Vol 7 (3) ◽  
pp. 83-102
Author(s):  
Metin Tetik ◽  
Mustafa Ozan Yıldırım
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
Taylor Rule ◽  
Generalized Method Of Moments ◽  
Policy Coordination ◽  
Real Effective Exchange Rate ◽  
Monetary Policies ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
Policy Interest

This study investigates the interaction between fiscal and monetary policies and how crises affect the coordination between policymakers in Turkey. This study’s novelty is that a nonlinear Taylor rule indicating monetary policy response function is estimated based on the Threshold Generalized Method of Moments (Threshold GMM) methodology over the period January 2006—March 2020. The empirical findings reveal that when fiscal policy has an expansionary stage, especially in crises times, the policy interest rate does not react significantly to the inflation gap, output gap and real effective exchange rate gap in expansionary periods. On the contrary the policy interest rate gives statistically important responses to these variables during contractionary fiscal policy periods. Thus, the effectiveness of the Taylor rule appears in a period of contractionary fiscal policy. This situation gives rise to the significant policy implication that the monetary policymaker’s success in controlling inflation increases with the contractionary fiscal policy. Finally, it has been observed that effective coordination between monetary and fiscal policies did not occur during crisis periods, but compatible coordination was achieved in other periods.

Trump fear colours Mexican monetary tightening

2016 ◽  
Keyword(s):  
Economic Growth ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Negative Impact ◽  
Content Type ◽  
Approval Ratings ◽  
President Elect ◽  
Spending Cuts ◽  
Negative Shock

Significance It is the highest level recorded since April 2009. Given the negative shock that US President-elect Donald Trump's November 8 victory caused for Mexico, a sharper interest rate rise had been widely expected. Impacts The reduced economic growth expected for 2017 should have a negative impact on the president's already low approval ratings. More expensive credit should hit consumption only moderately, as interest rates remain quite low by historical standards. If fiscal policy tightening accompanies the monetary move, it will be implemented through spending cuts rather than tax increases.

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