Central Bank credibilities – BBH

By FXStreet FXStreet (Guatemala) – Analysts at Brown Brothers Harriman explained that for at least a couple of years before the Great Financial Crisis, policymakers often cautioned that investors were mispricing risk.

Key Quotes:

“Through the crisis, investors became painfully aware of many risks, including counterparty risk and reputation risk. Now many observers are highlighting a new risk, what they call the credibility of central banks.

The issue is that many central banks are nowhere close to reaching their inflation targets. ECB President Draghi seems to agree. The ECB has a 2% inflation target. The Survey of Professional Forecasters and the ECB’s own staff has been revising their forecasts lows. Draghi has argued that if the central bank does not make more effort to reach its target, it will lose credibility.

Last October, the Financial Times argued that the BOJ’s credibility was on the line. It either had to expand its aggressive, unorthodox monetary policy, or it had to accept that its policies weren’t working. As we know the Bank of Japan did neither, though in December, it announced some largely technical adjustments its operations, ostensibly to help sustain its asset purchases. It …read more

Source:: FX Street