Is Draghi hinting of a coordinated central bank response?

28 June 2016, 19:56
Sherif Hasan
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ECB President Mario Draghi is speaking in the ECB conference in Sintra, Portugal. Also BOE Governor Mark Carney and Fed Chair Janet Yellen were scheduled to speak but their appearances have been cancelled. The reason is obvious: Brexit.

He focuses on cooperation between central banks, mentions that competition and divergence can be a “lose-lose” and cause higher volatility and that the global economy can benefit from an alignment of policies. 

Markets were looking better with EUR/USD recovering in range and GBP/USD was up 140 pips, alongside stock market bounces.

Highlights:

  • Central banks should not abandon inflation goals.
  • International cooperation more pertinent
  • Floating FX rates don’t guarantee policy autonomy.
  • Big output gaps after the crisis and they are still here.
  • Faster closing of the output gap in common interest.
  • Many central banks have engaged in unconventional policies.
  • Global excess of savings over investment.
  • Global economy can benefit from alignment of policies.
  • The ECB has demonstrated that it is possible to engineer new policies and this has been effective against global deflationary headwinds.
  • Formal cooperation between central banks is complicated naturally.
  • Divergence between central banks leads to higher volatility and spillover effects.
  • Competitive policies are a lose-lose situation.
  • The global economy could benefit from more cooperation.
  • Alignment can different according to the economic cycles but their goals should be similar.
  • The goals would be to have growth.
  • The G20 could have a key role in this alignment
  • Coordination would assist in stability
  • Fiscal stimulus could have positive spillover effect.
  • In a globalized world, the mix matters.
  • We need not think not only about our local policies but about the global composition of fiscal policy so not to over-burden monetary policy.

The last sentences seem to be hints towards more fiscal stimulus from Germany.


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