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Pretty much every China watcher, including us, has written in recent months about how reserve ratio requirement (RRR) cuts by the People’s Bank of China are not necessarily about credit easing. In fact these days, an RRR cut is not so much a move to make more credit available as it is to avoid reductions in liquidity.
Mark Dow, portfolio manager at Pharo Management, has a nice explanation of how this is, and where the RRR fits into the PBoC’s broader monetary policy. It starts with the policymakers’ credit expansion targets, which are believed to be about Rmb8tn to 8.5tn this year: Read more
We’ve written extensively about the problems facing US money market funds, the motives behind the Fed’s adding them to its list of reverse repo counterparties, and how sterilisation of further QE was an idea likely floated with MMFs in mind.
We won’t do a full recap here, but the idea is that with rates low and their margins incredibly thin, money market funds have been competing for a limited amount of collateral against which to lend in repo markets. Read more
Nothing was decided in the March 13 FOMC statement, though it did include the Fed’s cautious recognition that the prospects for the US economy had improved since the start of the year.
But the minutes from the meeting, set to be released on Tuesday at 2pm EST, are likely to scrutinised carefully for any discussion of what the Fed might do next. Read more
To be filed under “events notably lacking in eventfulness”.
Any interesting revelations from tomorrow’s FOMC meeting probably won’t come in the statement; we’ll have to wait for the minutes (to be released April 3rd) to know if there was further chatter about more QE, sterilised or otherwise. Read more
We’ve had our take — three of them, actually — but the economics team at Goldman has a concise note running through the pros and cons of sterilising QE that we think is worth passing along.
As a quick recap, sterilising QE would likely involve the Fed buying assets (probably including a heavy amount of MBS) in combination with reverse repos or more term deposits. That’s all from Fedwire’s piece Wednesday morning. Read more
Just when I thought I was out, they pulled me back in.
Into a global liquidity push, that is. Even as other central banks are very slowly heading for the exits (again?), the Bank of Japan last week unleashed some ¥28,000bn of liquidity as it sought to avert an earthquake-sparked credit crunch. Read more
We already knew Irish banks’ reliance on emergency lending is higher than ever — but how high can it go?:
While the Irish banks’ dependence on ECB funding dropped by another €9bn in February, their use of the Irish central bank’s Emergency Liquidity Assistance facility is estimated to have risen by nearly €19bn (currently standing at €67bn), thus yielding a net increase of €10bn. Furthermore, lending data for February (published on the 25th) included a €17bn tap from the ECB’s overnight Marginal Lending Facility; the subsequent decrease in autonomous factors by a roughly equal amount indicates that this €17bn tap has also been shifted to ELA. Consequently, our expectation is that “Other assets” in the balance sheet of the Irish Central Bank will rise by at least 17bn in March. Read more
Recent exchange action between the Japanese yen and the US dollar:
One of the reasons why Beijing has tended to stockpile US Treasuries is connected to the need to absorb surpluses generated via the US trade deficit with China.
China’s dollar peg largely depends on the process. Read more
Ding dong, the dollar’s dead — against its Asian and Antipodean counterparts, anyway.
Last week, as FT Alphaville has highlighted, the ECB prominently failed to sterilise all of its €55bn worth of bond purchases in its one-week fixed-term deposit auction.
Moreover, as we wrote at the time, what Europe’s central bank did manage to auction (€31.86bn) also came at a much-higher rate (0.54 per cent) than what it offered at the start of its Securities Markets Programme (SMP). Read more
The European Central Bank bought €4bn ($5bn) in eurozone bonds last week, the same as in the previous two weeks, indicating it had fallen into a pattern of low-level intervention in sovereign debt markets, the FT reports. On Tuesday, the ECB will attempt to “sterilise” €59bn – the total amount of bond purchases so far. Last week the central bank failed to drain the full amount because of banks’ reluctance to give up liquidity ahead of last Thursday’s expiry of €442bn in one-year LTRO loans. Read more
FT Alphaville says the European Central Bank’s latest attempt to sterilise its government bond purchases has landed with a resounding thud. Results from the ECB’s Tuesday one-week fixed-term deposit (FTD) auction, in which it planned to drain the €55bn of extra liquidity created by its €55bn of bond-buying, show the central bank only managed to auction €32bn. Financials are holding tight to liquidity. Read more
The European Central Bank’s latest attempt to sterilise its government bond purchases has landed with a resounding thud. Results from the ECB’s Tuesday one-week fixed-term deposit (FTD) auction, in which it planned to drain the €55bn of extra liquidity created by its €55bn of bond-buying, are in. Read more
The European Central Bank is not shy about highlighting its sterilisation efforts.
Having announced it would start buying government bonds back in May, it did not take long for the ECB to publicise its sterilisation process. This was not quantitative easing, the ECB said, since the Bank planned to drain liquidity by issuing one-week fixed-term deposits (FTDs). Read more
On Wednesday, the European Central Bank had a technical hiccup.
It accidentally published a “test message” outlining details of the planned sale of €10bn worth of three-month debt certificates to help mop up some eurozone liquidity. The sale was quickly squashed by ECB spokespeople, but the idea is continuing to appear in market commentary on Thursday. Read more
How big was the Swiss National Bank’s forex intervention in May? Very big, FT Alphaville writes – CHF3.5m for every minute of every eight-hour trading day in the past four months. How long can the SNB keep this up — and with what consequences? Read more