The Reserve Bank of New Zealand held its official cash rate at 2.5 percent, as expected, with central bank governor Alan Bollard forecasting earlier-than-expected tightening in mid-2010. Like neighbour Australia, New Zealand’s central bank is factoring in the wider gap between the benchmark rate and funding costs in its rate decisions. A higher currency and higher long-term rates have also reduced the need for immediate action.
Jean-Claude Trichet has taken a stand on the future of the US Federal Reserve. Interviewed by two Belgian newspapers, he said he “would be amazed if the current debate in the United States were to lead to a Federal Reserve System that no longer had a close link with micro-prudential supervision, since this does not appear to me to be the lesson that should be drawn from the crisis at all”.
His answer did not rule out that the Fed’s bank supervision responsibilities might be cut back. But Mr Trichet’s comments sound to me like a clear ECB vote for the “broad Fed” model as described by my colleague Krishna Guha. Given the ECB is usually reluctant to intervene on politically controversial issues (especially outside the eurozone), they suggest Frankfurt has worries about how the debate is going in Washington.
The Bank of Korea has left the seven-day repurchase rate at 2 per cent for the tenth consecutive month as expected, but the central bank governor said the central bank shouldn’t wait too long before gradually raising rates. Lee Seong Tae said that maintaining borrowing costs at the current level a year from now would be “unimaginable” if the economy kept growing more than one per cent each quarter (or about five per cent annually). South Korea’s GDP returned to positive territory in Q3, growing 0.9 per cent in the quarter. The International Monetary Fund this week raised its forecast for gross domestic product growth in 2010 to 4.5 percent from 3.6 percent.
Krishna Guha of the Financial Times asks has a discussion of oversight regulation silenced the Fed hawks? Read more