ECB joins US Fed to quell world markets

The European Central Bank and the world's top monetary authorities on Thursday announced a huge onslaught to boost the liquidity available to troubled global money markets.

ECB joins US Fed to quell world markets
Photo: DPA

The ECB said it was offering another one-day tender to supply €25 billion to the distressed financial markets.

On Tuesday, the bank provided markets with €70 billion ($100 billion) to keep them supplied with liquidity in order to facilitate inter-bank lending. On Monday it pumped in €30 billion.

The ECB on Thursday also joined the US Federal Reserve in making an extraordinary statement of concerted action: “Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan and the Swiss National Bank (SNB) are announcing coordinated measures.”

These were “designed to address the continued elevated pressures in US dollar short-term funding markets.” These measures, “together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,” they said.

“The central banks will continue to work together closely and will take appropriate steps to address the ongoing pressures.”

In New York, the US Federal Reserve announced a $180-billion cash line to fight the wildfire on global financial markets. In an indication of the long-running nature of the already 14-month-old crisis, the Fed said the “reciprocal arrangements” by the central banks would run up to January 30, 2009, or for another four and a half months.

The Fed approved increases in the existing swap lines with the ECB of up to $110 billion and with the SNB of up to $27 billion.

New swap facilities were also authorized with the Bank of Japan (up to $60 billion), the Bank of England (up to $40 billion), and the Bank of Canada (up to $10 billion).

The world’s central banks have pumped hundreds of billions of dollars into money markets to ensure the supply of funds does not dry up after the collapse of US investment bank Lehman Brothers.

The US government bailout of major insurer American International Group has failed to quell worries over the global financial system, with stock markets around the world hit by a fresh round of selling.


German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.