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ECB’s de Guindos says credit still cheap, cautious on stimulus withdrawal

ECB Vice President Luis de Guindos said that Euro zone borrowers can still finance themselves cheaply despite a recent rise in bond yields. But the European Central Bank should be cautious in removing support for the debt market.

The investors have begun to factor in a reduction in the pace of ECB bond purchases. This is the result of the infections falling and the euro zone’s economy slowly reopening. In recent weeks this has caused the borrowing costs on financial markets to rise. De Guindos said the present level of bond yields was still conducive to favourable financing conditions. The ECB speaks for a level of borrowing costs it is comfortable with.

In a news conference Guindos said that the present level of yields permits that the financing conditions of the governments as well as for the households and corporates are favourable. But when it comes to withdrawing monetary stimulus, he repeated his call for erring on the side of caution. He told that it has to be gradual, it has to be very prudent and also it has to be in parallel with the evolution of the recovery of the economy.

His personal view is that they should err on the side of prudence. It is much better to be prudent than be a little too aggressive in terms of phasing out the support measures, he mentioned. The ECB’s Governing Council will decide on June 10 whether to slow down, maintain or increase the pace of its Pandemic Emergency Purchase Programme. At present it is running at roughly 80 billion euros ($98 billion) a month.

Ten-year German yields, a benchmark for the euro zone, are at their highest level since mid-2019, holding not far below zero. The ECB was prepared to act if it deemed a rise in yields to be unwarranted said Guindos. He added that it is not if it was accompanied by an economic recovery. He told the CNBC that they will act if the rise in yields is unwarranted. He stated that if there’s a recovery going on, if inflation starts to go up and normalise economic activity, then nominal yields will have to go up.

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Euro zone ministers expect inflation to slow in 2022

The acceleration of euro zone inflation, driven energy prices, is mostly temporary. Then the price growth will slow down again. The euro zone finance ministers agreed that, that too the next year as forecasted by the European Central Bank and the European Commission.

Paschal Donohoe, chaired the talks of the ministers in Luxembourg. In a news conference he said that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy. This is under the EU’s ambitious plan of reducing CO2 emissions to zero by the year 2050.

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Under new rules, borrowing for investment sensible

British finance minister Rishi Sunak said that the government borrowing to fund investment was a sensible thing. This is to allow under new fiscal rules that he is likely to announce, unlike borrowing for day-to-day spending. He said that borrowing for capital investment that is going to drive up their growth is probably a sensible thing for them. And that too particularly in an environment of slightly lower interest rate. Sunak stated this in an event on the sidelines of the annual conference of Britain’s ruling Conservative Party. This event was organized by the Taxpayers’ Alliance advocacy group. Sunak stated in that event, that borrowing for more day-to-day spending is probably less something that you would want to have as part of your framework.

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IMF board to interview Georgieva-sources

The International Monetary Fund’s executive board is going to interview Managing Director Kristalina Georgieva. This is regarding that; its reviews claims that she pressured World Bank staff to alter data to favor China in her previous role. Board members were initially expected to meet with Georgieva. But spent their time working on other regular business matters.

The board members spent hours for questioning lawyers from the WilmerHale firm. This is about their World Bank investigation report which alleged that Georgieva, as the bank‘s CEO applied undue pressure on staff, to alter data in the flagship “Doing Business” report to benefit China. Then, an IMF spokesperson said that the IMF board remains committed to a thorough, objective, and timely review of the matter. Georgieva has strongly denied the accusations.

The upcoming interviews could prove pivotal in either increasing support for Georgieva. This is with many IMF shareholders are keen to wrap up the board’s deliberations on the matter. The fund’s most influential member governments, including the top shareholder the United States, have withheld public judgment. The World Bank tasked WilmerHale with investigating the “Doing Business” data irregularities identified in 2020. The law firm’s report contends Georgieva. The former World Bank President Jim Yong Kim’s office pressured staff to manipulate data so that the China’s global ranking in the “Doing Business 2018” study of investment climates rose to 78th from 85th.

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