Latest news with #FrancescoCanepa
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2 days ago
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ECB policymakers debate risk of inflation going too low
By Balazs Koranyi and Francesco Canepa FRANKFURT (Reuters) -European Central Bank policymakers hailed victory over runaway inflation on Friday even as some warned that it was now at risk of going too low, rekindling memories of anaemic price growth in the pre-pandemic decade. The ECB cut interest rates on Thursday for the eighth time in the past year and signalled at least a pause in policy easing next month since inflation was now safely back at its 2% target after three years of overshooting. Part of the argument for the pause is that economic growth is better than feared, a premise underpinned by fresh data showing the euro zone economy grew by 0.6% in the first quarter, above the 0.3% estimated earlier, and retail sales were also robust. However, the strong growth figure is an anomaly, many economists say. It was driven by frontloaded exports to the United States before tariffs kicked in and data was especially distorted by Ireland, where growth is fuelled largely by activity among big foreign companies based there for tax reasons. Portuguese policymaker Mario Centeno, who has long warned about the risk of price growth going too low, said his colleagues should be alert inflation dipping too far below 2%. "The inflation rate (in the euro zone) is currently below 2% and this downward trend will worsen until the beginning of next year, when it will approach the dangerous level of 1%, or slightly above that," he said in Lisbon. "This is a scenario that should alert us," he said. Finland's Olli Rehn said there was a particular risk from the escalation of the trade war with the U.S. and the outlook was so complex, the ECB's adverse scenario could not take into account all outcomes. "For example, serious disruptions to supply chains and disruptions in financial markets have been excluded from the analysis," Rehn said in a blog post. Part of the reason inflation could go lower is that Germany, the bloc's biggest economy, will stagnate this year, marking the third year of zero or negative growth as its long-predicted recovery keeps getting pushed further and further out. While Germany's new government plans to sharply increase fiscal spending on defence and infrastructure, this will not significantly boost growth until the end of 2027, the Bundesbank said as it cut growth projections for this year and next. "Concerns about a persistent undershoot may soon resurface, especially if trade tensions escalate, weighing on demand," Oxford Economics said in a note. Others took a more benign view that was more in line with the ECB's view that inflation will rebound and hit the bank's 2% target. "The ECB's 2% inflation target has essentially been achieved," Estonian policymaker Madis Müller said. "The expected economic growth in the next couple of years is also likely to be quite moderate, which means that there is no reason to worry too much about price pressure related to the heating up of the economic environment." Latvia's Martins Kazaks said he was also comfortable with the outlook and made the case for the ECB to take a break in cutting rates, partly to preserve policy space and to await fresh data. "I don't think the market should expect the trajectory of cutting rates at every meeting to continue," he told Reuters. "There is no need and there is value in maintaining policy space."
Yahoo
22-05-2025
- Business
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Exclusive-EU to delay bank rules as it waits for Trump's deregulation moves, sources say
By Francesco Canepa, Jan Strupczewski and Giuseppe Fonte FRANKFURT(Reuters) -The European Union is set to delay new, global rules governing banks' trading again as it waits for more clarity about the U.S. administration's plans to deregulate its financial sector, sources told Reuters. The Fundamental Review of the Trading Book (FRTB) is a key part the Basel III package devised in the wake of the global financial crisis but not yet implemented by Britain or the United States, two of the world's key financial centres. Its adoption in the EU was already pushed back by a year to 2026 last year, when it became clear that the United States would not be able to adopt the rules by its original deadline. The latest, one-year postponement to January 1, 2027 reflects pressure from European banks fearing they will find themselves at a disadvantage to their U.S. and UK rivals, five senior officials at European and national institutions said. A senior EU source said European Commissioner Maria Luís Albuquerque informed the bloc's finance ministers about the delay at a meeting on May 13. The European Commission had said it would make a decision on whether or not to postpone the FRTB by the end of June after consulting with the industry and its supervisors. The FRTB governs capital and reporting requirements relating to banks' trading assets, crucially including how risk should be measured using a standard method or banks' own calculations. The United States has stalled the introduction of the entire Basel III package and U.S. President Donald Trump's administration signalled it might even relax some of the existing rules, in what would mark a U-turn from the push for more controls that followed the 2007-2009 financial crisis. European banks have urged the EU to refrain from imposing new burdens that their competitors overseas do not face. "It now looks as if this set of rules will not exist in the U.S. and we know that Brussels is looking at this carefully," Commerzbank's chief executive Bettina Orlopp said at a conference on Monday. "We have to be careful that we maintain the international competitiveness of European banks." The European Central Bank, the EU's top banking watchdog and for a long time a staunch defender of a timely implementation of Basel III, proposed a compromise earlier this month. It envisaged a one-year delay to rules applied to banks' internal risk models, while those concerning the one-size-fits-all, "standardised approach" would be phased in over three years starting in 2026. Some governments have also weighed in, with French President Emmanuel Macron calling for a "synchronisation" on financial rules between the EU, the United States and Britain. Britain earlier this year pushed back its Basel III implementation to 2027 while Washington has yet to unveil a timeline. In contrast, the EU has already implemented most of the Basel III package, which took effect this year. China, Japan and Canada have done so long ago. In March, the European Commission launched a consultation, asking banks and supervisors if they thought the FRTB should go live next year, be delayed by 12 months or tweaked to align it more with draft U.S. and UK rules. The European Banking Federation, an industry body, said member banks that were exposed to U.S. and British competition favoured a one-year delay. The International Swaps and Derivatives Association, a global lobby, said "a clear majority" of its own members also favoured a delay, although a minority preferred that the FRTB took effect next year to avoid running both new and old rules at once. (Additional reporting by Tom Sims in Frankfurt, Leigh Thomas in Paris and Valentina Za in MilanEditing by Tomasz Janowski) Sign in to access your portfolio
Yahoo
22-05-2025
- Business
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Exclusive-EU to delay bank rules as it waits for Trump's deregulation moves, sources say
By Francesco Canepa, Jan Strupczewski and Giuseppe Fonte FRANKFURT(Reuters) -The European Union is set to delay new, global rules governing banks' trading again as it waits for more clarity about the U.S. administration's plans to deregulate its financial sector, sources told Reuters. The Fundamental Review of the Trading Book (FRTB) is a key part the Basel III package devised in the wake of the global financial crisis but not yet implemented by Britain or the United States, two of the world's key financial centres. Its adoption in the EU was already pushed back by a year to 2026 last year, when it became clear that the United States would not be able to adopt the rules by its original deadline. The latest, one-year postponement to January 1, 2027 reflects pressure from European banks fearing they will find themselves at a disadvantage to their U.S. and UK rivals, five senior officials at European and national institutions said. A senior EU source said European Commissioner Maria Luís Albuquerque informed the bloc's finance ministers about the delay at a meeting on May 13. The European Commission had said it would make a decision on whether or not to postpone the FRTB by the end of June after consulting with the industry and its supervisors. The FRTB governs capital and reporting requirements relating to banks' trading assets, crucially including how risk should be measured using a standard method or banks' own calculations. The United States has stalled the introduction of the entire Basel III package and U.S. President Donald Trump's administration signalled it might even relax some of the existing rules, in what would mark a U-turn from the push for more controls that followed the 2007-2009 financial crisis. European banks have urged the EU to refrain from imposing new burdens that their competitors overseas do not face. "It now looks as if this set of rules will not exist in the U.S. and we know that Brussels is looking at this carefully," Commerzbank's chief executive Bettina Orlopp said at a conference on Monday. "We have to be careful that we maintain the international competitiveness of European banks." The European Central Bank, the EU's top banking watchdog and for a long time a staunch defender of a timely implementation of Basel III, proposed a compromise earlier this month. It envisaged a one-year delay to rules applied to banks' internal risk models, while those concerning the one-size-fits-all, "standardised approach" would be phased in over three years starting in 2026. Some governments have also weighed in, with French President Emmanuel Macron calling for a "synchronisation" on financial rules between the EU, the United States and Britain. Britain earlier this year pushed back its Basel III implementation to 2027 while Washington has yet to unveil a timeline. In contrast, the EU has already implemented most of the Basel III package, which took effect this year. China, Japan and Canada have done so long ago. In March, the European Commission launched a consultation, asking banks and supervisors if they thought the FRTB should go live next year, be delayed by 12 months or tweaked to align it more with draft U.S. and UK rules. The European Banking Federation, an industry body, said member banks that were exposed to U.S. and British competition favoured a one-year delay. The International Swaps and Derivatives Association, a global lobby, said "a clear majority" of its own members also favoured a delay, although a minority preferred that the FRTB took effect next year to avoid running both new and old rules at once. (Additional reporting by Tom Sims in Frankfurt, Leigh Thomas in Paris and Valentina Za in MilanEditing by Tomasz Janowski) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
13-05-2025
- Business
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ECB to stand by past stimulus policies in strategy review
By Francesco Canepa and Balazs Koranyi FRANKFURT (Reuters) -The European Central Bank will stand by its aggressive stimulus policy of the last decade in a strategy review, side-stepping calls for self-criticism after a bout of high inflation and sizeable losses, several ECB policymakers told Reuters. The review, which began in March, will address some big questions about the way the ECB works, including whether massive bond purchases, negative interest rates and giving guidance on the future path for rates remain good policy tools. Conversations with ECB policymakers suggest the euro zone's central bank will largely endorse its past largesse, making only minor changes to a strategy document that was last updated four years ago. It will offer little, if any, criticism of steps it took during the sudden surge in inflation seen during 2021-22. In particular, the ECB is likely to keep a reference to the need for "especially forceful or persistent" action - a byword for quantitative easing (QE) bond-buying and other stimulus measures - when inflation and interest rates are at rock bottom, the sources said. They asked not to be named because work on the review is still ongoing. An ECB spokesperson declined to comment. Belgian central bank governor Pierre Wunsch has said the ECB should discuss dropping that clause. His Dutch peer Klaas Knot and German ECB board member Isabel Schnabel have both argued that bond purchases should be used more sparingly in future, arguing that short bursts of QE are effective but lengthy ones become too costly. Policymakers were presented with a preliminary strategy document at a retreat in Porto on May 6-7 and made suggestions for possible changes that will be incorporated in the coming weeks, the sources said. The document is likely to be finalised in early summer. In Porto, ECB staff presented analysis about the effects of the central bank's stimulus policies, concluding that these programmes had been beneficial and should remain part of the ECB's toolbox in the future. There was general agreement, however, that so-called "forward guidance" on interest rates should be used parsimoniously after it led the ECB to react too late to the spike in inflation in 2021-22. The review's preliminary conclusions had left some governors dissatisfied because they were hoping for a more critical retrospective on these policies. The sources nevertheless said the discussion had been collegial, without open rifts, suggesting that the document could be approved by a large consensus. The strategy document is also likely to say that the ECB is operating in an environment of high uncertainty and reaffirm its commitment to a "symmetric" 2% inflation target, meaning that undershoots and overshoots are equally undesirable. By creating large amounts of reserves via bond purchases to avert deflation through a decade of crises, the ECB effectively set up itself and the euro zone's 20 national central banks for losses once inflation and rates rose. The bloc's central banks are currently paying a 2.25% interest rate on some 2.8 trillion euros ($3.11 trillion) worth of bank reserves. While turning a profit is not a central bank's goal, losses deprive governments of dividend income, fuel criticism of it as an institution and risk eventually eroding public confidence. ($1 = 0.8992 euros) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
26-04-2025
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World breathes sigh of relief as Trump spares Fed, IMF
By Francesco Canepa, Jan Strupczewski and Leika Kihara WASHINGTON (Reuters) -Global policymakers gathering in Washington this week breathed a collective sigh of relief that the U.S.-centric economic order that prevailed for the past 80 years was not collapsing just yet despite Donald Trump's inward-looking approach. The Spring Meetings of the International Monetary Fund and the World Bank were dominated by trade talks, which also brought some de-escalatory statements from Washington about its relations with China. But some deeper questions hovered over central bankers and finance ministers after Trump's attacks on international institutions and the Federal Reserve: can we still count on the U.S. dollar as the world's safe haven and on the two lenders that have supported the international economic system since the end of World War Two? Conversations with dozens of policymakers from all over the world revealed generalised relief at Trump's scaling back his threats to fire Fed Chair Jerome Powell, the guardian of the dollar's international status whom he had previously described as a "major loser". And many also saw a silver lining in U.S. Treasury Secretary Scott Bessent's call to reshape the IMF and World Bank according to Trump's priorities because it implied that the United States was not about to pull out of the two lenders that it helped create at the Bretton Woods conference of 1944. "This week was one of cautious relief," Austria's central bank governor Robert Holzmann said. "There was a turn (in the U.S. administration's stance) but I fret this may not be the last. I keep my reservations." A politicization of the Fed and, to a lesser extent, the hollowing out of the IMF and World Bank are almost too much to fathom for most officials. Deprived of a lender of last resort, some $25 trillion of bonds and loans issued abroad would be called into question. NO ALTERNATIVE At the heart of policymakers' concerns is that there is no ready alternative to the United States as the world's financial hegemon - a situation that economists know as the Kindleberger Trap after renowned historian Charles Kindleberger. To be sure, the euro, a distant-second reserve currency, is gaining popularity in light of the European Union's newly found status as an island of relative stability. But policymakers who spoke to Reuters were adamant that the European single currency was not ready yet to dethrone the dollar and could at best hope to add a little to its 20% share of the world's reserves. Of the 20 countries that share the euro only Germany has the credit rating and the size that investors demand from a safe haven. Some other members are highly indebted and prone to bouts of political and financial turmoil - most recently in France last year - which raise lingering questions about the bloc's long-term viability. And the euro zone's geographical proximity to Russia - particularly the three Baltic countries that were once part of the Soviet Union - cast an even more sinister shadow. With Japan now too small and China's heavily managed currency in an even worse position, this left no alternative to the dollar system underpinned by the Fed and the two Bretton Woods institutions. In fact, the IMF and the World Bank could scarcely survive if their largest shareholder, the United States, pulled out, officials said. "The U.S. is absolutely crucial for multilateral institutions," Polish Finance Minister Andrzej Domanski told Reuters. "We're happy they remain." Still, few expected to go back to the old status quo and thorny issues were likely to await, such as widespread dependence on U.S. firms for a number of key services from credit cards to satellites. But some observers argued that the market turmoil of the past few weeks, which saw U.S. bonds, shares and the currency sell off sharply, might have been a shot in the arm as it forced a change of tack by the administration. "When President Trump talked about firing Jay Powell, the fact that markets reacted so vigorously to that ended up being a disciplining reality just reminding the administration that, if you cross that line, it could have some very severe implications," said Nathan Sheets, global chief economist at Citi. (Additional reporting by Maria Martinez and Karin Strohecker; Editing by Andrea Ricci)
