SHARE
COPY LINK

STOCKS

ECB joins central banks to bolster global finance

The European Central Bank joined monetary authorities around the world on Wednesday in a concerted effort to reduce strains on the financial markets and boost lending to businesses and consumers.

ECB joins central banks to bolster global finance
Photo: DPA

The central banks of the eurozone, Canada, Britain, Japan, United States and Switzerland said in a joint statement they were lowering the cost of providing dollars to banks, pushing stocks in Europe and the euro sharply higher.

The central banks said they were engaging in “coordinated actions to enhance their capacity to provide liquidity support to the global financial system.”

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” they added.

The arrangement allows the central banks to lend dollars to commercial banks that might be finding it hard to borrow them directly from other banks and is aimed at easing tensions in the crucial interbank lending market.

The banks said they were not only reducing the cost of this operation, but also extending it until February 1, 2013. They also agreed to allow cash swap arrangements in any of the participating countries’ currencies if market conditions require them.

“At present, there is no need to offer liquidity in non-domestic currencies other than the US dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise,” it said.

Such dollar operations were used to ease a credit crunch during the financial crisis of 2008-2009 and resumed in September in response to a dollar shortage among eurozone banks hit by the debt crisis.

European stocks surged on the news, with the German equity market up more than four percent, Spain and Italy more than three percent and France over four percent.

This “will probably help banks to get necessary liquidity to run their domestic operations in a smooth way,” an Italian trader told Dow Jones Newswires.

The euro also bounced sharply on the foreign exchange markets.

AFP/mry

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.

ECONOMY

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.

READ ALSO:

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.

SHOW COMMENTS