{"id":52463,"date":"2014-06-09T00:49:21","date_gmt":"2014-06-09T04:49:21","guid":{"rendered":"http:\/\/countingpips.com\/?p=52463"},"modified":"2014-06-09T00:49:21","modified_gmt":"2014-06-09T04:49:21","slug":"monetary-policy-week-in-review-jun-2-6-2014-ecb-joins-fed-boj-boe-in-new-world-of-zero-interest-rates","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/06\/monetary-policy-week-in-review-jun-2-6-2014-ecb-joins-fed-boj-boe-in-new-world-of-zero-interest-rates\/","title":{"rendered":"Monetary Policy Week in Review \u2013 Jun 2-6, 2014: ECB joins Fed, BOJ, BOE in new world of zero interest rates"},"content":{"rendered":"
June 9, 2014<\/div>
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By CentralBankNews.info<\/u><\/a>
\n    More than five years after the U.S. Federal Reserve, the Bank of Japan (BOJ) and the Bank of England (BOE) slashed rates to technically zero, the European Central Bank (ECB) followed suit last week, cutting its benchmark refinancing rate to 0.15 percent.
    The four major central banks in the world \u2013 the Fed, the ECB, the BOJ and the BOE \u2013 are now all in the unprecedented situation of employing ZIRP (Zero Interest Rate Policy), yet the global economy is neither in the depth of a financial crises, nor recession.
    Although ECB President Mario Draghi didn’t exclude another small cut in rates, he said that “for all practical purposes, I would consider having reached the lower bound today.”
    As the other three central banks, the ECB is flanking its zero rate policy with a series of extraordinary measures, once again pushing the boundaries of traditional monetary policy.
    One of the hallmarks of the ECB\u2019s initiative was a 10 basis point cut in the deposit rate to minus 0.10 percent, an experiment only attempted by Sweden\u2019s Riksbank and Denmark\u2019s Nationalbanken.
    The ECB also cut the rate on its marginal lending facility, used by banks to obtain funds on an overnight basis as a last resort, by 35 basis points to 0.40 percent.
    In addition to the 10 basis point cut its refinancing rate \u2013 a move that is more symbolic that economically important – the ECB is also launching a 400 million euro Targeted Longer-Term Refinancing Operations (TLTRO) program with the specific aim of getting the funds to Europe\u2019s households and non-financial businesses.
    Unlike the BOE, which launched its Funding For Lending Scheme (FLS) in July 2012, a forerunner for TLTRO, the ECB\u2019s lending scheme specifically prohibits borrowers from using the 4-year, fixed rate, low-cost loans for home purchases.
    At his press conference, Draghi explained that he wants to be sure that the low interest rates offered by the ECB under TLTRO actually make it into the economy and not just money markets.
    \u201cWe want to make sure that this feeds into the bank lending channel because our economy is 80 percent based on banks,\u201d said Draghi,
    Other features of what Draghi described as \u201ca significant package\u201d was the suspension of sterilization of liquidity injected under the Securities Markets Program (SMP) and an extension of the ECB\u2019s regular refinancing operations as fixed rate tenders with full allotment at least until the end of December 2016.
    The ECB purchased euro area government bonds under the SMP from May 2010 to February 2012 before terminating the program in September 2012.
    It is the closest the ECB has come to asset purchases as carried out by the Fed and BOE. But up to now, the major difference between the ECB and the other major banks in their asset purchases was that the ECB has absorbed the liquidity it pumped into the system via weekly tenders.
    The decision to suspend these tenders \u2013 valued between 150 and 170 billion euros \u2013 illustrates how the ECB is adapting its policy framework to current policy challenges.
    As Draghi explained, the original decision to sterilize the bond purchases under SMP was due to the fear of boosting inflation, at that point over 2.0 percent.
    \u201cNow we are in a completely different world, so that now this decision actually takes place in the background characterized by low inflation, a weak recovery, weak monetary and credit dynamics,\u201d Draghi told last week\u2019s news conference.
    The final, and potentially most far-reaching initiative, was the ECB\u2019s commitment to breathe life back into the market for asset-backed securities (ABS), a market that has shrunk by almost 80 percent since the global financial crises.
    Together with the BOE, the ECB has been working to boost Europe\u2019s asset-backed bond market as it would provide a direct avenue for central banks to provide credit to non-financial private companies, bypassing Europe\u2019s debt-laden banks.
    The ECB envisions securities that are simple in their structure, based on real loans to companies, not complex derivatives or debt obligations, and completely transparent.<\/p>\n

    Through the first 24 weeks of this year<\/b>, central banks have now cut their policy rates 25 times, or 11.7 percent of this year\u2019s 214 monetary policy decisions taken by the 90 central banks followed by Central Bank News.
    This is up from 10.6 percent at the end of May, 9.6 percent at the end of April and largely the same at 11.9 percent at the end of March, a clear illustration of how the global trend has now changed in favor of lower rather than higher interest rates.
    So far this year, policy rates have been raised 19 times, or 8.9 percent, down from 9.2 percent end-May and 10.8 percent end-April.
    The shifting trend can be seen in both advanced and emerging market economies.
    Central banks in advanced economies have changed their rates a total of 4 times so far this year: 2 rate cuts and 2 rate raises.
    Emerging market central banks have changed their rates a total of 20 times: 10 rate cuts and 10 rate rises.
    Central banks in frontier markets are still largely easing their policy stance, with rates cut a total of 5 times and only raised once. Central banks in other markets are also leaning toward easier conditions, with 8 rate cuts so far compared with 6 rate increases.<\/p>\n

LIST OF LAST WEEK\u2019S CENTRAL BANK DECISIONS<\/span><\/b>:<\/b><\/span><\/div>\n

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