FX MONETARY POLICY
How close are we to getting “Japanised”?
the previous Trichet management, is undeniable. In October, according to the European Central Bank, M3 money growth fell to 1.4pc from a year earlier (see Chart 1), lower than expected and far below the bank’s own 4.5pc target deemed necessary to keep the economy on an even keel. Monetarists watch the
M3 data -- covering cash and a broad range of bank accounts -- as an early warning signal for the economy a year or so in advance.
It is not true that the ECB is a replica of the old Bundesbank. Te Bundesbank would never have let M3 growth fall so
low for so long in Germany during the D-Mark era.
MARIO DRAGHI VS RICHARD KOO. AN ARTIFICIAL Q&A.
So. How close are we to getting Japanised ?
In his latest Q&A aſter the monthly ECB meeting on Dec 5th, Draghi delved into the topic extensively. In the opening remarks he basically said that, since “inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.... we may experience a prolonged period of low inflation, to be followed by a gradual upward movement
towards inflation Chart 1: Monetary growth was very weak in October
rates below, but close to, 2% later on”. In the following Q&A a question of this tenor was inevitable: ”… in Japan those (inflation) expectations moved a
48 FX TRADER MAGAZINE January - March 2014
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