FirstFT: ECB divisions open up over pledge to persist with negative rates

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The European Central Bank’s move to become more tolerant of inflation before raising interest rates has sparked immediate criticism from some of its more hawkish policymakers in an early indication of the divisions that will fuel its debate on when to scale back bond-buying.

After its latest policy-setting meeting on Thursday, the ECB said it would keep buying bonds and maintain its deeply negative interest rates in an attempt to shift the eurozone economy out of its persistent pattern of sluggish inflation, and was prepared to tolerate a moderate and transitory overshoot of its price growth target.

But the wording of its new stance drew criticism from the leaders of the German and Belgian central banks, who both sit on its 25-person governing council, according to people familiar with the discussions.

During the policy debate, Jens Weidmann, president of Germany’s Bundesbank, complained that the new conditions set by the ECB were too aggressive and increased the risk of inflation surging above its target.

In addition, Klaas Knot, head of the Dutch central bank, called for the ECB to separate the timing of when it will stop buying bonds from its new rate guidance, those familiar with the discussions said. Another council member said this idea was dropped after policymakers decided to postpone a discussion of the asset purchase plans until the autumn.

Speaking in a press conference after the meeting, Christine Lagarde, ECB president, said there had been “minor divergence” on the guidance but it had still won the support of “an overwhelming majority”.

Investors said the new guidance, published two weeks after the ECB unveiled a new strategy which increased its official inflation target to 2 per cent, made it more likely to keep its ultra-loose policy in place for longer.

In a column this week, JPMorgan’s Malcolm Barr, says the ECB’s strategy review, which produced the new target, is a missed opportunity.

“For almost all of this period of inflation undershoot, the ECB has set monetary policy while its own forecasts showed inflation would not reach its objective over the usual two to three-year horizon. One might have expected the ECB’s recent strategic review to engage with why this has occurred and how policy should evolve in response. There is little sign it has done so.”

Five more stories in the news

1. US places sanctions on head of Cuban military over protest crackdown Washington has imposed economic sanctions on Alvaro Lopez Miera in response to Havana’s crackdown on protesters, in an effort by president Joe Biden to increase pressure on the communist regime.

2. China flood death toll rises to 33, stoking climate change debate Deadly flash floods after record-breaking rainfall in central China have raised fears that the country’s early warning systems remain ill-equipped to handle extreme weather events worsened by climate change.

3. HK privacy law change will let the government block social media The Hong Kong government will gain powers to restrict local access to the world’s biggest technology platforms under legislation to punish “doxing” offences expected to be passed this year.

4. Elon Musk: SpaceX holds bitcoin Cryptocurrencies got a boost Wednesday after the tycoon disclosed that his SpaceX private rocket company held bitcoin and that Tesla would “most likely” resume accepting it as payment.

• More bitcoin news: A 22-year-old British national, known online as “PlugWalkJoe”, has been arrested in Spain for allegedly being one of four young hackers who grabbed control of dozens of celebrity Twitter accounts last year and used them to solicit more than $115,000 in bitcoin. And, custody giants BNY Mellon and State Street joined four other banks in backing a new digital token trading venue.

5. Australia rejects Great Barrier Reef ‘in danger’ listing Canberra, a laggard on climate policies that has yet to commit to achieving net-zero emissions by 2050, warned that Unesco risked denting its own credibility if it puts the reef on its “in danger” list.

Coronavirus digest

• China rejects WHO plan for further Covid investigation.

• The US will extend restrictions on non-essential travel at its borders with Canada and Mexico for another month.

• Fears of an acceleration of Covid-19 infections rose in Bangladesh, with more than 30 per cent of tests coming back positive as tens of millions of people joined in prayers for the festival of Eid al-Adha.

• Scott Morrison, prime minister of Australia, has apologised for his government’s bungling of the Covid-19 vaccine rollout.

• Pfizer and BioNTech will begin manufacturing their Covid-19 vaccine in South Africa, as part of an effort to accelerate the rollout of the jab on a continent battling another wave of infections.

Follow our live coronavirus blog and sign up for our Coronavirus Business Update newsletter for more.

The day ahead

Olympics The Tokyo Olympic Games, which has had no shortage of scandals, begins today, even as organisers fired the director of the opening ceremony a day before the show.

• Behind the scenes: FT Sports Editor Murad Ahmed is stuck in quarantine as he gets ready to lead coverage of the games. He shares his experience navigating the “chaotic and hyper-efficient,” Olympic tapestry in Japan and what he’s most looking forward to (Interview starts at the end of this note).

Financial update Mobile operator Vodafone releases its first-quarter trading update today, after funnelling hundreds of millions of euros into its telecoms networks to try to gain a bigger slice of the post-pandemic market.

• Also out today Monthly UK retail sales figures and Cips/Markit Purchasing Managers index for manufacturing and services in the UK, Canada’s monthly retail trade figures, earnings results from Honeywell International, NextEra Energy and American Express, and United Utilities’ AGM.

LatAm politics FT Alphaville will host a Twitter Spaces session with Ecuadorean presidential candidate Andres Arauz today at 4pm UK time. Arauz is part of a new generation of leftist Latin American leaders who oppose free-market orthodoxy and is open to experimentation with digital monetary systems. To join the conversation click here, or follow @izakaminska or @jemimajoanna and wait for the link to pop up. 

What else we’re reading

Things could fall apart for Biden This has been the best presidential start in the lifetime of most Americans. But Biden’s coming tribulations — the grinding to a halt of most of his reform bills, the stubbornness of Covid-19 and worries about the murder rate and border crossings — are largely out of his hands, writes Edward Luce.

How PE honcho Michael Rees turned the tables on Wall Street As with other successful financiers, Rees works in private equity. But unlike most of his peers, he makes money by buying a piece of the industry itself. The Dyal Capital financier won the trust of dozens of executives by acquiring stakes at high prices — until he gained enemies by selling a slice of his own.

‘After the Fall’ and ‘Last Best Hope’ — mourning in America After the Fall, a new book by Barack Obama’s former speech writer Benjamin Rhodes, and Last Best Hope (of Earth) by journalist and author George Packer grapple with the troubled question of what it is to be a citizen in today’s America. But in a books essay for the weekend magazine, Edward Luce observes “there is that nagging sense of American solipsism” in both titles.

The consequences of hitting Peak Johnson Is it possible that the UK will see the past few months as when we reached Peak Boris Johnson? The Conservatives are ahead in the polls and the prime minister’s rating is far higher than that of opposition Labour leader Keir Starmer. Yet looming challenges mean it is probably only downhill from here, writes Robert Shrimsley.

Sport

Murad Ahmed is the FT’s Sports Editor and will be leading our coverage of the Tokyo Olympics. He is currently quarantined in a hotel in the Japan’s capital, having arrived on a flight from London earlier this week. FirstFT caught up with Murad to see how he is settling in and to look ahead to what is likely to be one of the most unusual Games in Olympic history.

FirstFT: How has it been since you arrived in Tokyo?

Murad Ahmed: A mixture of the chaotic and hyper-efficient. Getting out of Tokyo’s Haneda Airport took four hours of queueing and form filling. There were paperwork checks, customs barriers, Covid tests and more paperwork checks. We were then led to buses, packed in like sardines, and taken to a car park full of plush taxis. Somehow, this elaborate system worked, even if social distancing largely went unobserved. The real aim is to keep us away from the wider Tokyo public. I’ve now started three days of strict quarantine in my hotel, including daily saliva tests, before being able to visit Olympic venues this weekend. Luckily, there’s a lot of news to cover in the meantime.

FFT: We have written a lot about Japanese people’s scepticism of the Olympics. Has the public mood changed now the Games are about to start?

MA: As I’m stuck in quarantine, I just don’t know. But my colleagues in the FT’s Tokyo bureau have a theory that once the sport begins, and if Japan wins a couple of early gold medals, public enthusiasm may rise quickly. One person close to the Olympic officials told me that there remains an outside hope that fans may even be allowed to return in the second week of the Games, though more likely, for the Paralympic Games that start next month. 

FFT: How do you think the government and organisers will measure the success of this event?

MA: Japan and the International Olympic Committee want to produce an efficiently-run Games that produces riveting television while achieving new global audience records. Any hope that these Games could be symbolic of a national reawakening, like the 1964 Tokyo Games, have been dashed. It’s up to the athletes to make these Games a victory over the pandemic.

FFT: What are you most looking forward to over the next 16 days?

MA: Witnessing sporting greatness. It’s a privilege to watch US gymnast Simone Biles somersault on the vault or British swimmer Adam Peaty in the pool. They are among the Olympians pushing the limits of the human body. I hope their stories take over from the otherwise all-consuming narrative of coronavirus. 

Murad and his team will be sending daily reports from Tokyo throughout the Games. To keep up to date with the latest Olympic developments, you can add ‘Tokyo Olympics’ to myFT. We will also be featuring an item daily in FirstFT.