The headline news from today’s Bundesbank financial stability review is about the €90bn in further write-downs it expects from German banks. But there are some insights on Bundesbank thinking on monetary policy as well – although Axel Weber, Bundesbank president, was not at the press conference to elaborate.
In particular, the Bundesbank favours an eventual return to “variable rate tenders” in liquidity-providing operations, in which the European Central Bank determines the amount of liquidity injected into the bank system. Since the collapse of Lehman Brothers it has, instead, been matching banks’ bids in full at a fixed interest rate.
The Office for National Statistics has today published a paper defending its early estimates of Gross Domestic Product against criticisms that the figures are not worth the paper they are written on. But its case rests entirely on trust, writes Chris Giles of the Financial Times, and does not address the external concerns about its data.
One global fear is that if China continues to peg the renminbi to the sliding US dollar, other Asian economies will retaliate by devaluing their currencies against both. With this in mind, today’s 5 per cent devaluation of Vietnam’s dong appears an ominous sign, but Vietnam is a special case writes Chris Giles of the Financial Times.
Vietnam announced on Wednesday that it will devalue the dong by over 5 per cent, raise interest rates and request big exporters to sell foreign exchange to the central bank in a dramatic attempt to underpin the beleaguered currency. The central bank also said it would reduce the trading band of the dong against the dollar to 3 per cent above and below a daily mid-point set by the central bank from 5 per cent (Reuters, more here).
The German government’s bailout of WestLB, one of the country’s largest regional Landesbanken, will, I am sure, be greeted with a cheer at the European Central Bank. Jean-Claude Trichet, ECB president, has been calling repeatedly for greater efforts to reinforce the eurozone’s banking system. Now it seems Wolfgang Schäuble, the new finance minister, has heeded his call and stopped all the political dithering over one of Germany’s worst performing banks. Berlin will provide up to €4bn to WestLB.
Berlin’s move is important to the ECB because the central bank is impatient to start implementing its “exit strategy”