Fixed exchange rates limit the degrees of freedom for policymakers. The breakdown of Bretton Woods in 1971 removed this constraint on official action, and the results were larger budget deficits and higher inflation. The zero bound on interest rates also posed a constraint on behavior. Until this year, despite the long struggle against deflation, the Bank of Japan never instituted a negative policy rate.
The market reaction to Draghi’s indication, once again, that interest rate policy has run its course, will be debated for some time. Draghi delivered the goods that many investors said was lacking last December. The ECB policy was more than anyone expected.
All the boxes were checked. Although the end date was not extended beyond March 2017, the four-year TLTROS will run into the new decade, and Draghi indicated that rates would remain low well beyond the end of the asset purchases. Moreover, the deadline was always soft.
The euro is paring the recovery that began in the middle of the ECB’s press conference yesterday. The market reaction was one intuitively expected to broad easing of interest rates and credit conditions.
The market reversed, and violently so, only after Draghi seemed to rule out further interest rate cuts. Many investors took this to mean the ECB had gone all in and that monetary policy had reached the end. We do not expect this interpretation to be sustained.
Australia’s 2016 Defence White Paper says a lot about the South China Sea, both directly and indirectly. It expresses concern about land reclamation and construction activities by claimants in the sea and about the possible use of artificial structures for military purpose. It also makes much of the importance of a rules-based global order to Australia’s security, with a clear message that some countries are not following these rules.
Draghi delivered. He managed to get approval for everything. Rate cuts, acceleration of purchases, including corporate bonds to the purchase program and new long-term repos were announced. The knee-jerk reaction was favorable. The euro fell over 1% and peripheral European bonds rallied.
Around the world, while women have gained significant ground on the issue of equal treatment under the law and norms of society, they still are not treated the same as their male counterparts in many economies. Christine Lagarde, head of the International Monetary Fund (IMF) says, “Inequality is sexist,” and argues that it actually hurts global economic growth.
Fasten your seat belts. The ride is going to get bumpy. Economists may differ on what the ECB will do. Investors may differ on the market response. This uncertainty ensures a strong market reaction.
The euro is off about 0.25% after recovering in the North American session yesterday. The euro has spent this week thus far mostly within last Friday’s trading range. It has finished the North American session in the last four sessions between $1.0999 and $1.1014 according to Bloomberg.
The longer life expectancy of people in industrialised countries means governments are raising the ages at which citizens can apply for state pensions.
In the UK, state pension age for both men and women is set to rise to 66 by October 2020, and 68 by 2046. Now the government has launched a review to look at whether it should rise even higher in the future.
German Chancellor Merkel was right. As the Greek crisis was winding down last summer, she noted that the refugee problem would be even more difficult. In addition, indeed, it is.
The refugee issue is challenging Merkel’s leadership in Europe. While her trademark has been her sensitivity to swings in sentiment, she has seemed rather tone-deaf in dealing with the refugee crisis.
South Asia’s economic potential has long been constrained by low levels of economic integration. Despite being closely linked geographically, culturally and historically, intra-regional trade is very low. A major problem has of course, been political difficulties within and between South Asian countries. However, an important, and overlooked, barrier to greater economic integration is the poor quality and inadequate investment in infrastructure in the region. The newly established Asian Infrastructure Investment Bank (AIIB) can play a pivotal role in fixing this problem.
