Daily Archives: December 15, 2009

Simone Baribeau

The Senate has confirmed Agustín Carstens, Mexico’s finance minister, as its next central banker, less than a week after Mexican President Felipe Calderón nominated him to the post.

Mr Carstens will take the post on January 1. His confirmation comes the day after Standard and Poor’s downgraded Mexico’s government debt to BBB, highlighting concerns on the country’s diminishing oil production prospects and expectations for weak overall growth. Read more

Simone Baribeau

As expected, the Central Bank of Chile left its benchmark interest rate unchanged at its historic low of 0.5 per cent and plans to hold the rate at that level until at least the second quarter of 2010.

Afterwards, the bank said, “The pace of normalization will be comparable to expectations contained in the monthly survey, and more gradual than the one implicit in financial asset prices.” Read more

Krishna Guha

I’ve just written a piece for tomorrow’s FT looking at five key exit strategy questions facing the Fed.

Just to be ultra clear to the best of my knowledge the Fed has only just begun strategizing on some of these issues and has not yet decided on a concrete plan. This underscores the fact that the Fed does not expect to be raising rates soon.

Here are the five questions: Read more

Rising inflation has increased speculation of an interest rate rise in India. (The speculation, in turn, has pushed 10-year bond yields to a 13-month high.) “Inflation concerns are gathering pace and this may force the central bank to tighten liquidity before the end of this month,” said one analyst. There are also rumours the Bank will increase the proportion of deposits banks must set aside as cash – the cash reserve ratio – from 5 to 5.5 per cent. Finance Secretary Ashok Chawla said yesterday the government is concerned that inflation is quickening, though there was no need for emergency rate action. Inflation will be in “the region of 6 per cent” by the end of March, he said.

Ralph Atkins

The European Central Bank’s “exit strategy” reaches another milestone: on Wednesday it announces the results of its last offer of unlimited one-year liquidity.

Alas, excitement levels are not high. Demand is generally expected to be far lower than when €442bn was injected into the eurozone bank system in June – the largest amount ever in a single ECB operation - and perhaps less than September’s €75bn. Read more

Argentina seems determined not to repeat the default of 2001. Economy minister Amado Boudou has said $6.6bn of the central bank’s international reserves will be placed into a fund this month, to help the government pay bondholders and international lenders for debts. The fund will cover about half of $13bn interest and principal payments due in 2010. The government said today it will give the central bank 10-year dollar-denominated notes, known as Letes, in exchange for the funds. Read more

Slightly off-topic for a central bank blog, but fascinating nonetheless. Professor Krugman:

“So what’s the paradox of toil? If you cut taxes on labor income, this expands labor supply — which puts downward pressure on wages and leads to expectations of deflation, which increases the real interest rate, which leads to lower output and employmentRead more

The OECD today invited Chile to become its second member in Latin America after Mexico. Chile will formally accept this invitation when an Accession Agreement is signed in the presence of Secretary-General Angel Gurría and President Michelle Bachelet on 11 January 2010 in Santiago. Read more

Treasury officials have just finished giving evidence at the Treasury Select Committee on last week’s fiscal plans announced by the UK government. Three things materialised:

  • Treasury officials appear to have been told they are not allowed to reveal the government’s plans for cutting departmental spending from 2011 to 2014. Instead, they evaded the issue, obfuscated and squirmed. It was a terrible spectacle. Worse, it is absurd that ministers are too scared to tell the public what is projected for

 Read more

Moody’s sovereign risk review is best described as sobering. There’s a risk of accelerating interest rate rises in 2010. There is also a risk of disorderly market conditions. We should limit our expectations on how much BRIC can help. And there is little comfort for Greece: euro membership may help with liquidity, but it is no protection against the risk of long-term insolvency. Key points below: Read more

… in a competition no-one would want to win. In its sovereign risk review, Moody’s has compiled a “misery index” – the addition of the forecast unemployment rate to the forecast fiscal deficit, 2010. It isn’t pretty. The UK’s forecast fiscal deficit – the highest of any country on the chart – places the country in a higher state of misery than Iceland, and only just less miserable than Greece. The top five are not, perhaps, surprising – but numbers six and eight should give us pause for thought.

Agustin Carstens has advocated the continued independence of Mexico’s central bank, and promised greater openness and transparency to the senators who will vote to ratify his nomination as chief. The incumbent, Guillermo Ortiz, will apparently stop chairing the Bank of International Settlements if – as looks likely – he leaves the Bank of Mexico. Carstens is a likely replacement. Does anyone know what Ortiz will do?

Mexico has just been downgraded to BBB from BBB+ by Moody’s, following a similar downgrade by Fitch on November 23. Read more

Now there’s a refreshing approach. The Vietnamese central bank has denied a plan to bail out banks following rumours of a liquidity crisis in the sector. “The central bank is pursuing a stable monetary policy and trying to curb credit growth. No money pumping. No higher interest rates,” said governor Nguyen Van Giau. Commercial banks recently increased deposit rates in an effort to attract more capital, leading to rumours that the central bank would inject as much as 20,000bn dong ($1.05bn). Read more

An imminent rise in the interest rate is unlikely. The Reserve Bank of Australia said it was in a suitably “flexible” position following three consecutive rate increases. Indeed, it transpires there was some debate over the last increase of 25bp. Minutes of the RBA meeting on December 2 noted: “The question … was whether it was more appropriate to take a further step at this meeting or to hold the cash rate steady pending a further evaluation of developments.”