Week of March 25, 2012 thru March 31, 2012

BOJ's Shirakawa:Skeptical Re Macroprud Efficacy Givn Lw Rates


WASHINGTON (MNI) - Bank of Japan Governor Masaaki Shirakawa Saturday voiced his skepticism regarding the "efficacy" of regulations and enhanced supervision aimed at preventing asset bubbles given that low interest rates are expected to be in place for a prolonged period.

Taking questions during a panel discussion at the Federal Reserve's central banking conference in Washington, Shirakawa also said the declining population growth in Japan is exerting downward pressure on inflation.

BOE King: Tradeoffs in Using Only Monetary Policy Undesirable


WASHINGTON (MNI) - Bank of England Governor Mervyn King Saturday said it was undesirable to use only monetary policy to control risk in the financial system, without the benefits of new macroprudential tools.

"The tradeoffs involved in trying to do everything through monetary policy are undesirable," King said after taking questions at the Federal Reserve's central banking conference in Washington.

King also said he considered both using interest rates and the purchase of government debt to be part of the central bank's common tool chest.

"These instruments I would put in one bucket, because the objective of using those is to try to achieve price stability," King said.

BOE's King: New Macro Prud Instruments Still An 'Experiment'


WASHINGTON (MNI) - Bank of England Governor Mervyn King Saturday said the new macroprudential tools sought by central banks were still in an experimental phase and acknowledged little was known about exactly how many of the new tools were going to work in practice.

Speaking at a Federal Reserve conference in Washington, King also said it remained an "open question" whether central banks should focus primarily on their existing monetary policy tools or new macroprudential regulation to control risk in the financial sector.

"This is an experiment," King said.

BOJ's Shirakawa: Must Avoid Excessive Focus On Shrt-Term Infl


--Warns Of Risks From Keeping Interest Rates Very Low For Too Long

WASHINGTON (MNI) - Bank of Japan Governor Masaaki Shirakawa Saturday said central banks in advanced economies should not limit their attentions to short-term price stability when conducting monetary policy, while warning at the same time of the risks from having a low interest rate environment for too long.

In prepared remarks before a panel discussion at Federal Reserve's central banking conference in Washington, Shirakawa also urged central banks to take into account the international "spillovers and feedback effects" that result from their policies.

BOE's Tucker: Rehypothecation Consequences 'Under the Radar'


WASHINGTON (MNI) - Bank of England Deputy Governor Paul Tucker Saturday said the practice of rehypothecation by primary brokers had fallen "under the radar" and suggested it may merit greater regulation by financial authorities.

By using clients money and assets, rehypothecation by primary brokerages means "in economic substance, they are banks," Tucker said at a Federal Reserve conference in Washington.

"This is a really significant issue that lies absolutely under the radar. We have to think through what rehypothecation means, and what we should do about it," Tucker said.

EX-ECB Trichet: LTROs Fully Justified,But Conditions Attached


--Adv Econs Must Use Lessons From Crisis To 'Vaccinate Ourselves'

WASHINGTON (MNI) - Former European Central Bank President Jean-Claude Trichet said the ECB's recent LTROs were "fully justified" but stressed certain conditions would have to be met by the financial system and the governments to ensure their success.

Trichet also urged advanced economies to use the lessons learned in the current crisis to "vaccinate" their economies against future troubles.

Trichet stressed the ECB should ensure commercial banks do not take advantage of the easy provision of liquidity and continue to address the need for deleveraging despite the ECB's three-year LTROs.

ECB Orphanides: Cent Banks Trgt Infl Due to Lack Of Econ Info


WASHINGTON (MNI) - Central banks would do better to focus on price stability due to a lack of precise measurements of output gaps in the economies, the European Central Bank's Athanasios Orphanides said Saturday.

Taking questions from the audience at a Federal Reserve conference in Washington, Orphanides said there remained a lack of accurate and timely measurements of the output gap in an economy, and said most policymakers in any case agree that keeping inflation in check has positive benefits for output and employment.

"Since we can not measure one, we should actually focus on the other," Orphanides said.

Riksbank's Svensson: Fed On 'Leading Edge' Of MonPol Best Prac


WASHINGTON (MNI) - The Federal Reserve's commitment to maximum employment, and now its adoption of an explicit 2% annual inflation target, has moved it to the "leading edge" in of the best practice of monetary policy, Riksbank Deputy Governor Lars Svensson said Saturday.

Speaking at the Fed's central banking conference in Washington, the Swedish central bank official said his view of what is considered best practice involves stabilizing inflation around a target, and employment around a long run sustainable rate.

"The new strategy of the Fed is very clear on these things," Svensson said.

ECB Orphanides:Mon Pol Can't Be Precise With Econ,Infl Uncert


WASHINGTON (MNI) - The intertwined uncertainties regarding the structure of the economy and determinants of short run inflation have inserted a complexity into monetary policy that means the best approach to achieving price stability, and the force with which it should be applied, cannot be made with "precision," the European Central Bank's Athanasios Orphanides said in a paper released Saturday.

BOE Tucker:Macro Prud Reg Should Target Fin Sys,Not Borrowers


WASHINGTON (MNI) - Bank of England Deputy Governor Paul Tucker Saturday said financial regulation should be aimed at improving the resilience of the banking and shadow banking system during an economic boom, rather than constricting the lending power of borrowers.