Well done to the Swedes. While the world frets and dithers about house price bubbles, the Swedish central bank has come up with a plan. In less than a year, a new commission will report back on all you could wish to know about Swedish housing bubbles: what makes them likely; what pops them; what tools are - or should be - available to combat them; and whether Swedes are currently in one.

The report will focus on residential property, although the (better studied) commercial property sector will be included. The commission will be run from within the central bank by heads of the monetary policy and financial stability departments. A related conference will be held in the autumn of this year and the final report is expected no later than January 31, 2011. Continue reading "Riksbank goes bubble-hunting"

• Could ECB cut rates? Possibility returning to investors’ screens - FT
• EU disunion priced at 55bp - FT Alphaville
• Trichet comes home early, but… - Money Supply
• Bank of England: a decision tree - Money Supply
• Head of BIS calls for bigger liquidity buffers - Naked Cap
• Israel cenbank overhaul law a step closer - Money Supply
• Political pressure and the Bank of Japan - Money Supply
• Greece FM: Calling for help would be “worst possible signal” - Calc Risk
• A flexible yuan: Yellen makes the case to China - Money Supply
• Citi launches financial crisis derivative - Felix Salmon
• Astounding. Debt-financed companies can get tax rebate - Felix Salmon
• CIC makes SEC filing: long Teck Resources, Morgan Stanley and Blackrock - Oxf SWF
• China overtakes EU to become Iran’s top trading partner - FT

Current US monetary policy is likely to prove excessively inflationary for China and Hong Kong, but both countries are ’stuck’ with the effects of Fed policy as they have pegged their currencies to the dollar.

So says Janet Yellen, San Francisco Fed chief:

Because both the Chinese and Hong Kong economies are further along in their recovery phases than the US economy, current US monetary policy is likely to be excessively stimulatory for them. However, as both Hong Kong and the mainland are currently pegging to the dollar, they are both to some extent stuck with the policy the Federal Reserve has chosen to promote recovery. Moreover, officials in both places are concerned about the prospects of dollar depreciation because they are large net holders of dollar-denominated assets.

In China’s case, increased exchange rate flexibility could mitigate growing inflationary concerns, and also act toward easing global imbalances and encouraging the development of the household sector, a shift the Chinese government now officially says it wants. The crisis has vividly demonstrated to the Chinese one of the downsides of pursuing an export-oriented growth strategy, namely increased vulnerability to adverse foreign shocks. The global crisis may therefore have enhanced the political will for an expedited transition to a more balanced Chinese economy.

Three issues should dominate tomorrow’s Bank of England inflation report: changes to the Bank’s economic forecasts; the implications of these changes for monetary policy; and the degree to which the Bank is confident it can offset further fiscal tightening with looser monetary policy.

Will we get clear indications of the Bank’s thinking on these three areas? There is no good reason why not, but a lack of justification for obfuscation doesn’t usually prevent the practice. All three are related so I have used the following decision tree to help my thinking.

In the diagram negative numbers represent the degree of policy loosening implied relative to November, while positive numbers indicate a degree of policy tightening and:

Continue reading "Bank of England: A decision tree"

Saudi Arabia, Qatar, Kuwait and Bahrain will begin discussing measures to set up a common central bank at a meeting on March 30 in the Saudi capital Riyadh, Asharq al-Awsat reported, citing the secretary general of the Gulf Cooperation Council, Abdel Rahman Al-Atiya.

The meeting, to be attended by central bank governors of the four nations, will be considered the first held by the joint central bank. They will also discuss the creation of a monetary union.

The remaining two members of the Gulf Cooperation Council, the United Arab Emirates and the Sultanate of Oman, are not taking part in the accord to set up a monetary union at this stage.  (via Bloomberg)

Related reading:

• Kuwait cuts rate to 2.5 per cent
• ‘No liquidity problems’: UAE central bank
• Gulf central banks stop public sector loans in first step to common cenbank
• UAE set to eschew common Gulf currency

Hector Sants resigned on Monday night as head of the Financial Services Authority, the City watchdog, in a dramatic move that throws the direction of financial regulation into question.

Mr Sants had been a vocal advocate of banking reform both in the UK and internationally in the wake of the financial crisis. He had also been outspoken in his criticism of the plans of a potential incoming Conservative government to disband the FSA.

It is unclear what Mr Sants’ plans are. However, he will work out a period of notice of about six months, according to people close to him (more from the FT).

A change in travel plans by Jean-Claude Trichet, European Central Bank president, has caused a flurry of excitement in financial markets this morning. He is leaving early a Reserve Bank of Australia conference in Sydney in order to get back for Thursday’s European Union leaders summit in Brussels. The buzz in markets is that this could be a sign that a bail-out is being prepared for Greece.

It is a good story to trade on (the euro is up a bit) but is such speculation credible? I am not so sure. It didn’t help that the first reports said Mr Trichet was returning for an extraordinary meeting of the ECB’s governing council - an understandable mistake for anyone in Australia not familiar with the EU’s array of councils and presidents.

But my understanding is that the ECB president always intended to be at Thursday’s summit in Brussels, which was Continue reading "Trichet comes home early"

With very little enthusiasm, Israeli politicians have given preliminary approval to a bill that would completely change the policymaking framework of the central bank. The first reading was passed 22-2 (that’s 24 people voting out of a possible 120). Two further approvals are required before the bill can become law.

Currently, the central bank governor has sole responsibility for making interest rate decisions, after discussions and a non-binding vote by central bank department heads. The bank has worked this way since 1954.

Discussions have been underway for 12 years to move toward the European/American model, in which a committee or board cast binding votes on the interest rate decision. The current proposal is to create a six-member board headed by the governor. Continue reading "Israel cenbank overhaul law closer - on 1/5 turnout"