Global central bankers led by Federal Reserve officials said they are still a long way off from tightening monetary policy, seeking to calm investors unnerved by the Fed’s push toward curtailing bond-buying.
The comments, along with efforts by the People’s Bank of China to allay concern over a cash crunch, helped halt a slide in stocks after the Fed’s June 19 decision to outline a timetable for tapering quantitative easing. Bank of England Governor Mervyn King and European Central Bank Executive Board member Benoit Coeure today echoed Fed counterparts in saying policy will stay loose to safeguard economic expansion.
“Clearly the level of interest rates and the scale of asset purchases will have to be unwound and we must return to more normal conditions at some point,” King told lawmakers in London. “That point is not today.”
Also speaking in London, Coeure said euro-region economic growth will probably remain “weak” this year and there should be “no doubts that our ‘exit’ is distant.” In a speech in Berlin, ECB President Mario Draghi said the euro-area economy’s condition “still warrants an accommodative stance.”
The Europeans’ comments come a day after two regional Fed presidents emphasized that U.S. policy remains accommodative. Chairman Ben S. Bernanke last week said the Fed may start slowing the pace of bond buying later this year and end it entirely around mid-2014 if the economy gets on a path of sustainable growth. The Standard & Poor’s 500 Index fell 1.2% yesterday.
“The bottom line is that they’re driving home the point that there’s no exit yet,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York. “Many economies can ill-afford higher interest rates.”
China’s central bank said today it will keep money-market rates at a “reasonable” level amid a cash squeeze which last week sent the nation’s overnight repurchase rate to a record.
The People’s Bank of China has provided liquidity to some financial institutions to stabilize money market rates and will use short-term liquidity operations and standing lending facility tools to ensure steady markets, according to a statement today. It also called on commercial banks to improve their liquidity management.
U.S. stocks rose, with the S&P 500 advancing 0.6%. In Europe, the Stoxx Europe 600 Index increased 1.4%. Stocks were also boosted by U.S. consumer confidence and new- home sales data that exceeded economists’ forecasts.