Courtesy of Mish.
The message on this 4th of July from Central Banks is “we will keep doing what hasn’t worked and what won’t ever work” until it does work.
Case Number One
In central bank case number one Draghi Says ECB Rate to Stay Low for ‘Extended Period’
President Mario Draghi said the European Central Bank expects to keep interest rates low for an “extended period” as he tries to restrain market borrowing costs, in a new departure for an institution averse to setting policy in advance.
“The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said at a press conference in Frankfurt. “What the Governing Council did today was to inject a downward bias in interest rates for the foreseeable future. Our exit is very distant.”
The ECB chose words over deeds after an “extensive discussion” about cutting interest rates, and the support for the new language was unanimous, according to Draghi. He said the bank kept an open mind on whether to cut the deposit rate below zero.
“The Governing Council had all options on the table this month and will keep them there in case things worsen again,” said Christian Schulz, senior economist at Berenberg Bank in London. “This time, they decided against another rate cut and decided to stage a mini revolution by introducing forward guidance instead.”
Historically, Draghi and predecessor Jean-Claude Trichet have said that the ECB “never precommits” to any future monetary policy.
Draghi said the reason for taking what he called an “unprecedented” step was the ECB’s expectation that the subdued outlook for inflation will extend into the medium-term amid broad-based weakness in the 17-nation euro-area economy.
Case Number Two
In central bank case number two Pound Slumps Most Since 2011 as BOE Signals Rates to Stay Low.
The pound plunged the most in almost two years against the dollar after the Bank of England signaled it will keep interest rates at a record low for longer than investors had expected.
Gilts rose and short-sterling futures jumped, indicating traders were reducing bets on higher borrowing costs. Led by new Governor Mark Carney, the central bank kept its bond-buying target at 375 billion pounds ($565 billion) and issued a statement afterwards, signaling a move toward the foward-guidance tool he favors.
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