samchain/econo-pairs-v1 huggingface dataset:
The low level of interest rates, both in nominal and real terms, and the generally favourable financing conditions have been lending support to the ongoing economic recovery in the euro area. Fiscal imbalances in the euro area have not improved in 2004, while the current account balance remained virtually unchanged. According to the European Commission, the average general  2  BIS Review 66/2004  government deficit in the euro area increased to an estimated 2.9% of GDP in 2004 (from 2.7% of GDP in 2003), while the current account is expected to record a surplus of close to 1% of GDP, slightly higher than in 2003. Although the Commission is projecting a decline in the total euro area fiscal deficit to 2.5% of GDP in the years 2005 and 2006, the slow pace of fiscal consolidation is a cause of concern, especially in view of the expected growth in the coming year and given the underlying imbalances associated with population ageing. Greater progress towards healthier public finances will strengthen confidence and support, rather than hinder, the ongoing recovery. Economic effects and policy implications of higher oil prices In this presentation of our assessment of the economic outlook and of our decision on the monetary policy stance, one aspect stands out which is of particular interest to investors, consumers and the financial markets at large - the recent sizable rise in oil prices. This is an important issue, and one on which clear and convincing communication from the central bank is warranted.

Over the past few years, M3 growth has been very strong in the euro area, partly as a consequence of flight-to-safety portfolio shifts out of stock markets in the period of heightened stock market volatility between 2001 and 2003. As a consequence, there is now substantially more liquidity in the euro area than is needed to finance non-inflationary growth. This excess liquidity could pose inflationary risks in the future. Moreover, the persistently high excess liquidity and strong credit growth could become a source of unsustainable asset price increases, particularly in property markets. I will elaborate on this point later on in my presentation. In summary, our assessment of the outlook for price stability, on the basis of the economic analysis and cross-checking with the monetary analysis, leads to the following conclusions: underlying inflationary pressures are still contained; there are still, however, a number of medium-term upside risks to price stability that must be monitored carefully; and for this reason, strong vigilance is required with regard to the materialisation of such risks. Against this background, the ECB’s Governing Council decided at its meeting on 4 November 2004 to leave the key ECB interest rates unchanged. On that occasion, we again noted that the level of interest rates in the euro area remains very low by historical standards. Indeed, at 2%, money market rates are the lowest since the end of the Second World War, and at 4%, long-term government bond yields are also well below long-run averages.
These have repeatedly surprised to the upside in both magnitude and persistence over the past year, putting painful pressure on the cost of living and placing the MPC in the current, very uncomfortable position of forecasting headline CPI inflation to peak at over 7% in April. For a net importer of energy and goods, these developments represent a deterioration of the terms of trade.2 This is an adverse real shock, with adverse real consequences. Higher international energy and goods prices unavoidably weigh on UK real national income. But it is a real shock with substantial nominal implications. Higher energy and core goods prices account for the bulk of the inflation target overshoot, and a large part of the successive upside surprises we have seen in inflation outturns. This lays bare that we are in difficult trade-off territory for monetary policy. The driver of higher inflation is also a driver of lower real income and demand in the later years of our forecast, and thus higher unemployment. No ‘divine coincidence’ here.3 Bringing down inflation through monetary tightening has to be weighed against its impact on employment and activity. Looking ahead, the sensitivity of headline inflation to developments in international energy prices is significant, as the alternative forecast scenarios published in the MPC’s February Monetary Policy Report illustrate. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Were international energy and goods prices to stabilise – even at permanently higher levels – eventually their direct impact on UK inflation would dissipate.

Should they fall slowly in line with futures prices, inflation is forecast to fall below the 2% target by a meaningful margin at the policy-relevant horizon. Yet uncertainty on this dimension remains considerable. With the pandemic giving way to geopolitics as the driver of international energy prices, they are unlikely to become easier to forecast. This brings me to the second key element of the forecast: our treatment of the labour market and wage developments. Recent data confirm that the UK labour market is tight. It is tighter than we expected at the time of the previous Monetary Policy Report published in November.4 And we expect it to tighten further in the coming months. On the back of this labour market tightness and in light of our Agents’ recent wage survey – which embodied the highest expectation for pay settlements since well before the financial crisis 5 – we have revised up underlying wage growth in 2022 to rates approaching 5%. Given expected productivity developments, this rate is probably stronger than that consistent with the inflation target over the medium term. But we expect the forecast stronger momentum in domestic wage and cost growth to ease beyond this year, as headline inflation falls and unemployment rises owing to the impact of higher energy prices on real incomes and domestic demand. This is a crucial assumption – the ‘big call’ – underlying our inflation outlook.
Weaker price and cost pressure Although we have not changed our views of developments in economic activity, during the autumn and at the beginning of this year we have gradually changed our view of inflationary pressure in the Swedish economy. This is connected with the labour market showing a weaker development than was forecast in December. Another factor is that productivity has increased more rapidly than expected, resulting in lower domestic cost pressure. A further factor is that the recent decline in inflation appears to have had some effect on inflation expectations, which have fallen slightly. Some of these are factors we pointed to already in December. At our meeting in early February we were able to base our decision on statistics from a further couple of months which reinforced the picture. Inflation was expected to be below target level and we therefore cut the repo rate by 0.25 percentage points. Let me go into these factors more closely and comment on them in the light of events since February. This is because it is essentially these factors that lie behind the decision we made yesterday. During the latter part of 2003 unemployment rose relatively sharply. A number of factors contributed to this. Demand for labour declined both in the business sector and in the public sector, and there were cutbacks in labour market policy measures.

This remains true even though we have not had to enforce the minimum exchange rate with foreign currency purchases since autumn 2012. In my comments today I will explain the reasons why we are maintaining the minimum exchange rate. I will begin with a brief look at global economic developments. Then I will present our forecast for the global economy and the Swiss economy. Based on this, I will follow with an examination of the outlook for price stability. As you know, in our view, developments on the Swiss mortgage and real estate markets represent a risk for financial stability. I will therefore use this opportunity to follow up with a brief presentation of our considerations on this topic. I will round up my remarks with two examples which illustrate the link between monetary policy decisions and our balance sheet. Global economic developments in 2013 First, let me begin by reviewing the events of 2013. On the one hand, there was a certain feeling of renewed confidence last year. This can be mainly attributed to the ebbing of the European financial and debt crisis. The alleviation of the crisis is likely to have made a significant contribution to Europe’s emergence from recession. Meanwhile, economic growth in the US firmed and the economy in Japan picked up perceptibly. On the other hand, concerns about a number of emerging economies increased.
One benefit of EMU membership for Switzerland as a trading nation would be lower transaction costs derived from the use of a single currency and the disappearance of a considerable part of exchange rate risk for our exporters. Interestingly, with the Swiss Franc’s recent stability vis-à-vis the Euro, Swiss Euro oriented exporters have of late enjoyed both the interest rate bonus and considerable currency stability. This, of course, does not apply to our dollar-oriented exporters who have to manage a substantially higher exchange rate risk. When we observe Switzerland’s business cycle and its degree of relative synchronization with that of the Euro-zone, there is little evidence that the two business cycles would be fundamentally incompatible in the context of a monetary union. Not surprisingly in light of our trade links, our business cycle is relatively closely correlated with that of Germany. Nonetheless, it is worth pointing out that in terms of annual real GDP, Switzerland has outperformed Germany in ten out of the last 24 years (Chart 4). There seems to be an increasing synchronization of national business cycles inside the Euro-zone, though this pattern can also be observed for economies that were outside EMU such as the UK, Switzerland and Sweden (Chart 5). Higher business cycle synchronization may simply reflect the fact that with growing globalization, the overwhelming economic trends are global rather than intra-regional.

3  Because Swiss GDP statistics do not fully take into account the improvement of the terms of trade regularly realized by the tradable sector, the growth differential between Switzerland and other advanced economies is overstated but remains significant nevertheless. See e.g., Term-of-Trade Changes and Real GDP: Evidence from Switzerland, Ulrich Kohli, SNB Quarterly Bulletin, June 2002. BIS Review 24/2004  3  Monetary policy and EMU Accession to a monetary union transfers the power over monetary policy from the national to the union level. There are costs and benefits to such an abdication of monetary sovereignty. Nominal interest rates are equalized throughout a monetary union and the nominal exchange rate is no longer available as a tool for alleviating the impact of asymmetric shocks. Necessary economic adjustments between different countries of a monetary union must therefore occur through various price and factor movements. As I have already suggested, imposing real wage adjustments in particular can be politically costly. In the case of both the UK and Switzerland, these potential costs of EMU membership are mitigated by virtue of flexible labor markets in both countries. In the case of Switzerland, EMU accession would also lead to the loss of an interest rate bonus our country has traditionally enjoyed. At least partly, this bonus is rooted in the credibility of the Swiss National Bank, acquired over a long period of independent and successful monetary policy (Chart 2).
The renewed volatility we saw in January is proof enough of that. Yet, I think we can remain generally optimistic on the outlook so long as market participants continue to appropriately discriminate across countries, rather than treating EMEs as a homogenous group. Furthermore, many EMEs generally appear better equipped today to handle the Fed’s prospective exit from its exceptional policy accommodation than they were in past tightening cycles. This reflects the fundamental reforms these EMEs have put in place over the past 15 years, as well as the hard lessons learned from past periods of market stress. Among the positives are: •  The absence of the type of fixed exchange rate peg regimes that often were undermined violently in the past during periods of stress;  •  Improved debt service ratios and generally moderate external debt levels;  •  Larger foreign exchange reserve liquidity cushions;  •  Clearer and more coherent monetary policy frameworks, supporting what are now generally low to moderate inflation rates;  •  Generally improved fiscal discipline; and  •  Better capitalized banking systems, supported by strengthened regulatory and supervisory frameworks. Of course progress has not been uniform across EMEs and more work remains to strengthen institutional structures further in some countries. In particular, vulnerabilities have built up recently in several important EMEs. Still, the fundamental improvements I’ve cited leave many EMEs better positioned than in the past to weather those times in the cycle when the external environment turns from welcoming to wary.

23.05.2018  25th Financial Sector Meeting: Innovation, Transformation and Reputation Deloitte, Sociedad de Tasación and ABC Luis M. Linde Governor  Let me begin by thanking the organisers – Deloitte, Sociedad de Tasación and ABC – for their invitation to me to participate in this session of the 25th Financial Sector Meeting, which on this occasion turns on three ideas: innovation, transformation and reputation. In my opinion, these three concepts accurately encapsulate the main challenges currently faced by the financial sector. The new technologies are enabling financial institutions to transform their systems and their business models, but this transformation should not lead us to forget that the keystone of any market, and all the more so financial markets, is customer confidence. The financial sector is faced with a singularly complex setting and this conference provides an opportunity to confer with institutions’ key decision-makers on the different ways in which changes are being addressed at this time of transformation, which will be crucial for the future of the industry. The new technologies, which have already significantly impacted various sectors, now have the potential also to substantially change the way in which financial services will be provided in the not-too-distant future. I would thus like to take this opportunity to offer my view on the opportunities and risks these new technologies pose.
Caleb M Fundanga: Supervision of non-bank financial institutions Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the opening ceremony of a MEFMI/ACBF/IMF - East Afritac Regional Workshop on “Supervision of non-bank financial institutions”, Lusaka, 14 February 2005. *  *  *  •  The Executive Director, MEFMI, Dr. Maruping  •  The Executive Director, Africa Capacity Building Foundation  •  Representative from the IMF  •  Distinguished Workshop Participants  •  Ladies and Gentlemen  On behalf of the Macroeconomic and Financial Management Institute for Eastern and Southern Africa (MEFMI), the African Capacity Building Foundation (ACBF) and the East African Technical Assistance Centre (AFRITAC), I wish to welcome you all to this important workshop and to the beautiful city of Lusaka. May I also welcome our distinguished resource persons and thank them for accepting our invitations. I hope their participation will enrich the deliberations of this workshop as well as enhance the knowledge of the participants. Having perused through your programme, I noticed that you have a tight schedule. However, I urge all of you to find time in your busy schedule to visit some interesting places that the city of Lusaka has to offer, including shopping malls, museums, cultural villages, to mention but a few. Allow me also to thank the Executive Director of MEFMI, Dr. Maruping, for having invited me to officiate at this regional workshop on “Supervision of non-bank financial institutions”.

It is against this background that financial sector supervision should also be directed at financial institutions that pose the greatest risks, such as, non-bank financial institutions. In this regard, the adoption of the risk-based approach allows the supervisor to devote more supervisory effort to those areas that have a high-risk profile. This therefore, entails that supervisory authorities should shift their focus from the traditional Capital, Assets, Management, Earnings, Liquidity, and interest rate Sensitivity (CAMELS) approach to a more risk-based approach. A risk-based supervisory approach would involve the identification of key risks, the level of these risks and the key risk areas. After identifying these risk factors, a comprehensive supervisory framework with appropriate resources is then assembled to mitigate the risks. The amount of resources required is dependent on the level and intensity of the perceived risk. However, suffice to mention that this does not mean that the risk-based supervisory approach ignores the strengths of the CAMELS approach, but rather addresses the weaknesses by putting more emphasis and resources on areas with potentially higher risk. Ladies and Gentlemen As many of us are aware, financial sector operations have become complex nowadays, as they entail, among others, managing financial, market and operational risks, which depend, to a large extent, on public confidence in the financial system. In this regard, proper supervision is critical to minimising risks as well as ensuring the stability of the financial sector and engendering public confidence.
2  Second, the original design was not well-equipped to prevent the build-up of domestic macroeconomic imbalances with the potential to generate serious economic and financial instability for the euro area as a whole. The European Semester and the Macroeconomic Imbalances Procedure were established after 2010 to address this issue, but the experience so far seems to be mixed.1 Third, beyond what was stipulated in the no-bail-out clause, the Treaty did not envisage the creation of a crisis management framework. This was partly addressed later through the creation of the ESM in 2012 amid a very serious sovereign debt crisis affecting some of the largest economies of the European Union. Finally, and quite importantly, the Treaty had not envisaged the need for significant aggregate fiscal action to smooth the cycle and assist the common monetary policy. This was evident, for example, during the low inflation period after the euro area sovereign debt crisis, when the degree of coordination of fiscal policies provided for by the fiscal framework fell short of the aggregate stimulus that was needed to complement monetary policy. And, also as a consequence of this lack of pre-established aggregate fiscal tools, during the COVID crisis, an ad-hoc response had to be adopted, in the form of temporary, centralised fiscal instruments. First of all, the general escape clause in the SGP2 was activated, permitting a very expansionary fiscal stance at the country level.

Although this was not a major decision for us, it was a very prominent confirmation of our status in the world economy. BIS has less than 50 shareholders and is really an elite clique of the leading central banks. That it has decided to invite us to become shareholders was in recognition of the status that Thailand now has in the financial and economic market place of the world. That the BIS last week decided to buy back all its privately held shares, becoming purely a central bank for central banks is of course a reinforcement of this development. Another achievement of our own doing, this time towards transparency is that we are now qualified in the Special Data Dissemination Standard of the IMF, the 21st country to do so in May this year. This set of data is a guarantee whereby a country delivers enough information in a timely manner, such that international investors have a reasonable chance of evaluating its performance and prospects. Many leading countries are still unable to qualify, because they have things that they wish not to be shown to the public, whereas we have taken the road that what cannot be shown in public perhaps  1  BIS Review 86/2000  should not be done. We therefore participated also in the international reserves template both voting for it, and qualifying in the first group of countries to do so that have subscribed to the SDDS.
An important point to observe is that the rate for which the FOMC sets a target, the overnight federal funds rate, represents an unsecured lending rate between banks. But the Desk conducted its operations with its primary dealer counterparties – government securities dealers that have an established trading relationship with the New York Fed – in the secured financing market for general collateral repurchase agreements, or GC repos. This market serves as a hub in which broker-dealers and other market participants finance their  3  See my November 27, 2012, Remarks on the Role of Central Bank Interactions with Financial Markets. 4  The Federal Reserve also established a baseline demand for reserves through reserve requirements. Since the expansion of the Federal Reserve’s balance sheet and resultant increase in reserve levels, however, these requirements have been so far below the level of actual reserves that they can be met without any additional Desk actions. 2  BIS central bankers’ speeches  inventories of securities, frequently borrowing from cash-rich investors, such as money market funds. These financing arrangements are structured as repos, in which the security is technically sold with an agreement to repurchase at an agreed-upon later date. The transaction can be thought of in most respects as economically similar to a collateralized loan.

More information can be found in Regulation D.  4  BIS central bankers’ speeches  short-term rates like GC repo have tended to be more variable and have, more than in the past, fluctuated with sometimes unpredictable spreads to federal funds. These periodic episodes of weaker linkages suggest that although the IOER rate effectively influences the marginal unsecured funding rate for eligible depository institutions, it may not be representative of, and may currently lie above, the marginal cost of funds more broadly across money markets, for example, secured financing costs faced by repo market participants. This weakening of the relationship between short-term interest rates represents a reduction in the precision with which the Desk is able to control them over the very short term. It’s difficult to know, though, whether the shift in dynamics across money markets we’re seeing is permanent or temporary. While some of the changes could be indicative of an increasing desire by market participants to focus on collateralized rather than uncollateralized markets, it could also reflect more transitory factors related to an elevated level of reserves that leaves banks with no need to borrow funds given the abundance of deposits. Of course, it’s also difficult to know with certainty how money market rate relationships will respond when the FOMC eventually begins to remove policy accommodation in an environment with a high volume of reserve balances.