Currencies in Turkey, South Africa, Hungary and Russia suffered
major sell-offs over the past month before recovering slightly after
central banks fought back via interest rate hikes or exchange rate
With euro zone inflation far below the European Central Bank's
target, policymakers in Frankfurt, including Bundesbankers, are
watching the turmoil in case it affects the economic outlook.
The ECB says the bloc has proved resilient so far.
Speaking in London, ECB Governing Council Ewald Nowotny said it was
"good news that we see improvements in the real economy" but added
that the central bank still needed to discuss how this affected
Slightly stronger-than-expected growth in Germany and France pushed
the euro zone's recovery up a gear in the fourth quarter.
The ECB has set out two scenarios that could trigger fresh policy
action: a deterioration in the medium-term inflation outlook and an
"unwarranted" tightening of short-term money markets.
"There might be good arguments to say let's wait and see (on
interest rates)," Nowotny said, adding: "A negative deposit rate ...
is one potential element but there has been no decision and we are
still in the process of discussion."
Negative rates essentially entail charging banks to hold their
money, thus encouraging them to lend.
A cut in interest rates is just one option for dealing with low euro
zone inflation — running at 0.7 percent and below the ECB's target
of just under 2 percent — or tight money markets.
Another option the ECB has discussed is to suspend operations to
soak up money it spent buying sovereign bonds during the euro zone's
debt crisis under its now-terminated Securities Markets Program (SMP).
The Bundesbank signaled that, to help stabilize euro zone money
markets, it would be open to adjustments of the ECB's weekly
withdrawal of money it spent on the SMP.
"Overall, the Bundesbank therefore is open to a possible adjustment
of the hitherto offer of liquidity absorbing operations, should this
be suited to stabilizing money markets and liquidity conditions and
thereby signal even more clearly than so far the accommodative
monetary policy stance of the Eurosystem," it said.
Such a step would add about 175.5 billion euros ($240.19 billion) to
ECB Executive Board member Benoit Coeure, asked by Reuters about the
idea last week, said such options can be effective, adding: "But I
don't see the need to do it now."
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In its February monthly report, the Bundesbank said China appeared
poised to continue growing without much disruption but noted that
central banks in some emerging economies had hiked rates in response
to capital outflows and currency falls.
"Even if this should slow the economic growth of the countries
concerned, their low global weight means it is not to be expected
that the recovery of the world economy will be appreciably
affected," the German central bank added.
In Germany, the underlying economic momentum should have "increased
appreciably" in the final quarter of 2013 and the first of 2014, it
said, noting "almost continual improvement" in companies' and
households' assessment of the situation.
"However, this should only fully show up in the GDP growth rates at
the turn of the year, when the increased order inflow translates
into production," the Bundesbank added.
The German economy grew by 0.4 percent in the final quarter of last
"In the euro zone, if burdens from the debt crisis still exist, the
signs are increasing for a gradual economic recovery," the bank
The Bundesbank noted that increased risk aversion in financial
markets led early this year to a fall in share prices and a flight
into liquid government bonds, adding:
"Nevertheless, the valuation level of shares on both sides of the
Atlantic is still relatively high."
In a section of its report on the German property market, the
Bundesbank said residential prices continued to rise, with prices in
125 German cities up 6.25 percent in 2013, though it still saw no
larger macroeconomic risks in the market overall.
"There is currently no indication for a destabilizing interaction
between real estate price increases and credit supply on a
macroeconomic level," the Bundesbank said.
Prices rose significantly more strongly in cities than in rural
Germany. The Bundesbank said residential property in big German
cities was probably over-valued by 25 percent on average.
($1 = 0.7307 euros)
(Writing by Paul Carrel; editing by
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