From Bloomberg:

The European Central Bank made its final offer of unlimited funds over six months as policymakers continue to withdraw the measures put in place to fight the financial crisis.

The ECB called for bids today in a tender where the rate paid will be indexed to the average of the ECB’s main rate over the life of the loans. It will announce the results tomorrow at around 11:15 am.

The ECB started pulling back stimulus in December, when it stopped offering 12-month loans, and it will also tighten the terms of its 3-month operations. ECB President Jean-Claude Trichet said earlier this month that it was gradually phasing out its non-standard liquidity measures to prevent banks from developing a “dependency” on central bank funds.

“What determines the size of the six-month will be the banks who still have genuine problems getting access to liquidity,” said Natacha Valla, an economist at Goldman Sachs Group Inc. in Paris. “That’s definitely fewer banks than was the case a year ago.”

The ECB previously offered the six-month funds at a fixed 1 per cent, its benchmark interest rate. The change means the banks would pay more if the ECB raises its main rate during the term of the loan. The ECB also issued a separate call for bids on its three- month market operations. It will return that operation to the pre-crisis practice of offering funds at a variable rate from next month.

(Ralph Atkins is away.)

• US SEC launches ‘Repo 105′ probe - FT
• Abu Dhabi and Dubai in exchange merger talks - FT
• Ireland launches bad loan bank for €81bn property loans - FT
• Poland: cenbank / finmin disagree on IMF loan extension - Business Week
• UK Election: parallels with 1992 - Money Supply
• Water top priority for Pakistan in relations with India - FT
• Conception, if not birth, of Gulf central bank - Money Supply
• BoE’s Dale says inflation more resilient than expected - Reuters
• Imbalances: German domestic demand can only increase so much - Lex
• Reserve currencies: move from $, € strengthens attraction to China of floating RMB - FT
• UK Election: Chris Giles on the chancellors’ debate - Money Supply
• Brazil: Lula considers Tombini & Coutinho as cenbank heads - Bloomberg

As far as the economy and the election is concerned, I have been struck by the similarities with the 1992 election for some time. After finding some contemporary analysis of the 1992 election, on which I worked as a cub researcher, my memory has been playing tricks on me. There are even more similarities than I remembered.

• The Treasury’s forecast appears frozen in time. In March 1992, then Chancellor Norman Lamont was forecasting growth of 2 per cent in 1992-93, followed by growth averaging a little over 3.25 per cent in the following four years. Alistair Darling is now forecasting 2 per cent in 2010-11 and an average of  touch under 3.25 per cent over the next four years.
• Political parties were laughably wrong on the public finances. Even though the 1992 economic forecast was not too shabby, the Conservative deficit reduction plan was (like Labour’s is now) to roughly halve the deficit in four years from 1991-92 to 1995-96. The outcome was much worse.
• Conservatives wanted to spend and borrow less than Labour. Labour’s policies included rises in child benefit and state pensions and lower privatisation (which, bizarrely was then accounted for as negative spending).
• The opposition’s shadow Budget included complicated national insurance cuts. In 1992 Labour proposed to abolish the 2 per cent entrance fee to national insurance - giving a benefit to all households of about £50 a year (about £80 in today’s prices). No one understood it and this tax reduction for the poor and the middle did the party no good. The Conservatives are now proposing to raise the primary threshold in national insurance by £24 a week giving almost all workers a £150 benefit. I suspect this might have as little traction as in 1992.
• Labour was proposing a 50p higher rate of income tax. Er it is now. Then Labour wanted it to raise serious money, levying it on incomes above £36,375 (£56,000 in today’s money). Now the party wants the new tax rate to apply on incomes over £150,000. Unlike 1992, the Conservatives now also support the 50p income tax rate.
• Conservatives proposing lower taxes than Labour. Labour’s tax rises were not limited to income tax - it also proposed removing the ceiling on national insurance, bringing in a 59 per cent tax rate on all incomes over £36,375.
• Just look at the distributional consequences. On the right is the rough picture for All parties today and Labour’s was similar in 1992. (I am sorry the scales are not consistent - in 1992, the IFS did not seem to trust people with percentages)

Of course there were big differences too. But the tories must be hoping that their offer of lower taxes, rapid growth and lower borrowing will appeal and that this time a complicated cut in national insurance will resonate. Labour must be hoping people will trust the government more than the opposition in a time of trouble and do not understand the NICs changes.

One other parallel is worth mentioning. The Conservatives won the election, but when their optimistic forecasts and lack of transparency over the implications of the public finances became apparent, the public felt betrayed and has not trusted them for 17 years. With its coyness on public spending cuts, Labour is risking the same this time round.

Central banks of the world, prepare to welcome a new addition to the family: the Gulf central bank.

Its leaders have just been announced by the new joint monetary council, in what will probably be seen as the inaugural meeting of the new joint central bank. Jurisdiction will cover Saudi Arabia, Qatar, Kuwait and Bahrain. Reuters reports the bank chairman as Saudi central bank chief, Dr Muhammad Al-Jasser. His deputy will be Bahrain’s central bank chief Mr Qassim Mohammed Fakhro.

With leaders chosen, meetings underway and an ultimate head office location of Riyadh (see map), what more is required? “There are certain legislative and financial measures that have not been completed” for the monetary union, Kuwait central bank governor Sheikh Salem Abdulaziz Al-Sabah told a news conference. Today’s meeting is expected to approve plans and a timeframe for the new institution.

The creation of a central bank is a precursor to an intended single currency, initially due this year but since postponed. Reuters reports that no deadline will be set. To this end, the four central banks were asked in January to stop public sector lending in order to streamline their loan portfolios.

Dr Jasser has just said that a currency peg will be set by the common central bank once it is formed - it may be pegged to the dollar, like the Qatari riyal, or to a basket of international currencies, as in Kuwait. If the latter, the basket is likely to contain the dollar, euro, yen and pound sterling, the currencies of much of the Gulf’s trade

The two other members of the Gulf Co-operation Council - the United Arab Emirates and Oman - are not currently on board.

After a rather inspiring hour of TV debate, here was my take. Who won? No-score draw, I reckon. Will it change anything? No. Was it worth it? Not really. For another take go to the Westminster blog, which is plumping for Vince Cable as the victor.

So boxed-in are the three candidates for chancellor by the budgetary arithmetic that there was broad agreement on the main tasks facing the next occupant of Number 11.

All agree that cutting the budget deficit is a top priority and it will require a tougher spending settlement than those under Mrs Thatcher in the 1980s. None wanted to tell the audience in the studio or at home what deep cuts they had in mind although they each had some small examples to give the impression they were tackling the problem.

They all accepted that pensions for public sector workers should be trimmed and those employed by the state could not have a guarantee of their jobs. They all agreed taxes would rise and did not rule out changing income tax or value added tax. A brain drain of the richest was an exaggerated threat, they chorused, suggesting their priorities lay elsewhere. The government should address inequalities and bankers’ bonuses were outrageous. Banks should lend more and this was one the necessary ingredients for securing growth in the economy.

That much was agreed, so the disagreements were relatively minor.

Alistair Darling and Vince Cable rounded on George Osborne for Continue reading "Depressing consensus among chancellor candidates"

If all goes well in the post-recovery world, the Americans will be saving and the Chinese will be buying, according to Paul Jenkins, Senior Deputy Governor of the Bank of Canada.

In a speech today, Mr Jenkins spelled out Canada’s view of the world’s economic future. He predicts industrial economies have a potential growth rate of between 2 and 2.5 per cent and emerging-market economies have a rate of between 5 and 8 per cent. Emerging markets’ growth will so far outstrip developing countries growth, he says, that by 2020 emerging-market economies will likely account for over 55 per cent of global output, compared with 45 per cent today.

And emerging-markets won’t just be producing more, they’ll be consuming more too. Continue reading "Canada looks beyond recovery"

Chris will be posting on the economic aspects of the programme. Also, please note that our Westminster Blog colleagues are doing a live blog.

Romania and Hungary cut interest rates to record lows on Monday as central bankers looked to support growth following improved investor risk perception in central and eastern Europe.

The National Bank of Romania lowered its monetary policy rate from 7 per cent to 6.5 per cent, while the Magyar Nemzeti Bank in Budapest trimmed the base rate from 5.75 per cent to 5.5 per cent, the lowest since the fall of communism.

Romanian and Hungarian currencies have strengthened in recent weeks and it has become cheaper to insure against the risk of their debt defaulting, as investors bet that eastern Europe is gradually overcoming the worst of the financial crisis. Greek banks hold significant assets in Romania, but so far contagion risks appear benign. Continue reading "Hungary & Romania: rates at record lows"