By Matthew Duhan, Global Counsel
Despite the economic and currency crisis engulfing Ukraine, by 7 o’clock in the evening the National Bank of Ukraine (NBU) is virtually empty. But as the majority of its 12,000 employees head home, lights remain on in a few offices and footsteps echo through dark hallways as a small group of reform-minded individuals arrive for their unofficial night shift. To paraphrase the old line about the Indian economy, at the National Bank of Ukraine reform happens in the night while the government sleeps. Read more
If there’s one thing that central banks like, it is being independent. But EM central bankers’ decisions are currently being made with the influence of their developed economy counterparts looming large over them.
Many central banks in emerging markets are still in easing mode. The People’s Bank of China cut rates by 25 basis points, effective March 1, while a few days later India made the second of two cuts this year outside its normal meeting cycle. But with the dollar soaring, the Fed apparently still on track to raise rates for the first time in June, and the market’s attention focusing on the large stock of dollar-denominated corporate debt issued by emerging markets, further cuts are likely to get riskier as time goes on. Read more
Developed country central banks that see quantitative easing as a route to recovery are merely inflating bubbles, driving up the prices of assets held by rich people and failing to deliver growth on the ground. So says Atiur Rahman, governor of the central bank of Bangladesh.
“QE will lead to bubbles and overheating,” he said during a visit to beyondbrics on Friday. “They are creating liquidity in the air and never really touching the ground.” Read more
South Africa’s new central bank governor took centre stage on Thursday, but the story was a familiar tale of caution and bleak growth for Africa’s most developed nation.
After heading his first monetary policy committee meeting, Lesetja Kganyago said the decision was taken to keep the bank’s repo rate on hold at 5.75 per cent.
Kganyago took up his post earlier this month, replacing Gill Marcus, who announced in September that she would not be seeking a second five year term. But little changed in the language and detailed delivery of the last MPC statement of the year. Read more
By Márcio Garcia of PUC-Rio
Last year’s taper tantrum caused massive turbulence in global markets. Risky assets suffered greatly and many emerging markets currencies depreciated heavily, including the Brazilian real.
In response, the Brazilian central bank (BCB) decided to intervene in the foreign exchange markets. After an ad hoc beginning, from August 2013 the BCB announced a programme of sales of $2bn of exchange rate swaps every week, plus a weekly auction of $1bn in short term dollar credit lines to the banks. Read more
Under communism, it was the norm for state companies and institutions in central Europe to own holiday homes: come summer, reluctant and poorly paid comrade workers could enjoy the proletarian splash with one another from the Baltics to Burgas.
But after 1990, as managers sought to focus on core activities in the drive to a market economy, such real estate was mostly divested – often at attractive prices to those in the know.
Now, guess what? The company resort is making a comeback – at least in Hungary, where local weekly hvg has unearthed a story that the central bank (MNB) is buying up property for the good of its very own staff. Read more
By Márcio Garcia of PUC-Rio and Tony Volpon of Nomura
Since the “taper tantrum” of May 2013, emerging markets have been under pressure. While not configuring a 1990’s style “sudden stop”, with most EM FX markets doing better since the beginning of this year, the prospects for eventual monetary normalization by the US Federal Reserve nevertheless pose challenges for EM economies. Brazil has had specific problems during this period, showing a marked deterioration in macro fundamentals, with falling growth and rising current account deficits. For many investors, this has earned it an unfortunate place among so-called “fragile” countries.
Brazil’s central bank (BCB) has adopted a unique intervention strategy to face these pressures, which we analyse in a recent working paper. Read more
Raghuram Rajan, governor of the Reserve Bank of India, accuses policy makers in the developed world of lacking co-ordination. But how do EM central bankers stack up and how will their behaviour shape investment decisions?
“You have to be selective this year,” says Michael Ganske, head of emerging markets at Rogge Global Partners, a fixed income fund with $59bn under management – and the selection process begins with an assessment of a country’s economic fundamentals and the credibility of its financial policy makers.
With that in mind, here is a beyondbrics rundown of the guiders, the reactors and the mavericks at key EM central banks currently battling turmoil on financial markets. Read more
As emerging markets remain rattled by investor jitters, Raghuram Rajan, India’s central bank governor, has resurrected a gripe of old by attacking the US for its lack of concern about the global impact of its withdrawal of extraordinary monetary stimulus.
Mr Rajan, a former chief economist for the International Monetary Fund, told Bloomberg India TV that “international monetary co-operation has broken down.”
“Industrial countries have to play a part in restoring that [co-operation], and they can’t at this point wash their hands off and say, we’ll do what we need to and you do the adjustment.” Read more
One of the less remarked-on pieces of news out of Turkey on Wednesday was a statement from the central bank that it has ditched its “additional monetary tightening” facility, under which its overnight interest rate used to be bumped up a bit from time to time in a not very transparent manner.
In so doing, the CBRT has removed one more out of several unorthodox aspects of its monetary policy that have so bothered investors. But how complete is the bank’s conversion to the straight and narrow? Read more
Russia has picked a symbol for the rouble kitting out the five centuries old national currency with a contemporary new look to rival the US dollar ($), the British pound (£) and the Japanese yen (¥) . It’s time for traders to take the rouble more seriously.
Hit by hyperinflation in the chaotic early 1990s and then by repeated devaluations, Russia’s rouble has become associated with trouble since the Soviet Union collapsed. Read more
For the second month running and the third time this year, the Bank of Mexico has cut its key interest rate, bringing it to a new historic low of 3.5 per cent in a widely-expected move aimed at giving a boost to economic growth.
The 25 point cut followed a surprise cut of the same size on September 6 after the economy shrank in the second quarter for the first time in four years. The bank also cut by 50 basis points in March. Read more
Colombia’s central bank on Friday left its key interest rate unchanged at 3.25 per cent for a sixth straight month. The decision, which was widely expected following last week’s strong growth data, was unanimous.
In its bid to revive economic activity – which had slowed after reaching almost 6 per cent in 2011 – the central bank cut its benchmark rate by 2 percentage points between July 2012 and March 2013, to the lowest among major Latin American economies. Read more
By Istvan Horvath
In recent years the most important central banks have been striving to offer predictability. Their major task has been to guide expectations. The Hungarian National Bank is trying to re-establish exactly this tradition after a near-silent transition phase following the changes in its leadership this spring.
Successfully riding a supportive external environment, since August 2012 it has managed to cut its base rate from 7 per cent to 3.60 per cent, an all time low, after a 20 basis point cut on Tuesday. But every good story must come to an end, and this easing cycle will end soon. Read more
By Hemindra Hazari of Nirmal Bang Institutional Equities
Since Raghuram Rajan took over as governor of the Reserve Bank of India on September 4, the battered rupee and India’s badly bruised stock and bond markets have staged a sharp recovery. Markets, it seems, believe the governor can restore confidence and revive inflows of foreign capital. Read more
Ajith Nivard Cabraal, the Sri Lankan central bank governor, is on a mission – to China.
As the world waits for the US Federal Reserve to start “tapering” its $85bn monthly bond purchase programme – the prospect of which has hit many emerging market currencies including the Sri Lankan rupee – Cabraal is heading to China to attract more investment to the south Asian economy. Read more
By Taimur Baig of Deutsche Bank
India should consider itself lucky to have a man of Raghuram Rajan’s intellectual prowess to head its central bank, as announced this week, at such a precarious moment. Rajan will need all his academic and operational experience (professor at the University of Chicago, chief economist at the IMF, chief economic advisor at the India’s finance ministry) to rise to the occasion. He will also need one more attribute that I will discuss at the end of this piece. Read more
A snap view of what the markets think of Raghuram Rajan and the task awaiting him as he prepares to take on the top job at India’s central bank. Read more
Before Raghuram Rajan takes up the top job at the Reserve Bank of India, what can we tell from his own writing about what kind of governor he will be?
In other words: what advice has he been dishing out, now he’ll be on the receiving end? Read more