Daily Archives: January 8, 2010

An international committee designed to deal with issues common to the banking, securities and insurance sectors has appointed a new chairman. Tony D’Aloisio succeeds John Dugan for a two-year term, effective January 1, 2010. 

The Philippine central bank is signalling a rise in the rates it charges lenders to borrow from the bank.

Bangko Sentral governor Amando Tetangco said he might raise the re-discounting interest rate, used to regulate liquidity by increasing or decreasing the amount of money lent to banks. Currently the rate appears to be at 3.5 per cent. 

Chris Giles

I am struck by the similarity of the disagreements on both sides of the Atlantic as the active process of quantitative easing (or credit easing if you live in the US) seems to be coming near to an end.

Krishna wrote in today’s FT about arguments within the Fed over whether it is the quantity of money created to purchase mortgage backed securities from Fannie Mae and Freddie Mac that matters for boosting the economy and the US housing market or whether it is the continued flow of those purchases. On our UK pages, Dan Pimlott teased out the same argument over the Bank of England’s purchases of government bonds.

This is an incredibly important issue, theoretically and practically, and though some people have very strong views, no one really knows how or whether unorthodox monetary policy works.

In very simplistic terms, the stock of money advocates base their thinking around concepts derived from the quantity theory of money,

MV = PT

where M is the the stock of money, V is the velocity of circulation or speed money moves around the economy, P is the price level and T is the volume of transactions. This equation is true and both sides equal nominal GDP.

 

Ralph Atkins

A hawkish speech by Tom Hoenig, president of the Federal Reserve Bank of Kansas City, prompted my colleague Krishna Guha to suggest - in jest, I presume – that perhaps he would fit in better at the ECB than Ben Bernanke’s Fed. I am not so sure. Nobody at the ECB has dared to speak so openly about the dangers of leaving interest rates low for too long – let alone use mention the “h-word” (hyperinflation).

Of course, Mr Hoenig’s worries would be echoed behind closed doors at the ECB. Quite a few in Frankfurt would agree with his assertion that: “experience has shown that, despite good intentions, maintaining excessively low interest rates for a lengthy period runs the risk of creating new kinds of asset mis-allocations, more volatile and higher longer-run inflation, and more unemployment – not today, perhaps, but in the medium- and longer- run.” But public utterances in Frankfurt tend to be more cryptic, with potential problems referred to only indirectly. 

From Reuters:- Moody’s Investors Service has just upgraded Turkey’s government bond rating to Ba2 from Ba3, reflecting the rating agency’s growing confidence in the government’s financial shock-absorption capacity. The outlook was changed to stable from positive. Fitch moved late last year to put Turkey on BB+.

Timothy Ash, an analyst at Royal Bank of Scotland, said: “It’s a bit disappointing that Moody’s only moved one notch, as this still leaves Moody’s rating of Turkey one notch behind Egypt, which I have long failed to understand… answers on a postcard as to why Turkey should be rated behind Egypt. Obviously Moody’s was ‘inspired’ by the hugely successful eurobond issue earlier this week ($2bn placed, and $7bn in orders). Clearly, investors are voting with their feet, irrespective of the views of the ratings agencies.”

South Korea’s central bank today left its policy interest rate unchanged at a record low of 2 per cent to “help sustain the trend of recovery in economic activity”.

The bank said that consumer price inflation was accelerating, driven by fuel prices and bad weather, and that both domestic and export markets were improving. However, there still “remains uncertainty as to the economic growth path due to the risk of delay in a full-fledged recovery of the major advanced economies”. 

The Danish central bank agreed yesterday that, effective from today, various interest rates would be reduced by 0.05 percentage points to combat the strengthening of the Danish currency, saying: “The interest rate reduction is a consequence of purchases of foreign exchange in the market.”

The rates on certificates of deposit, the lending rate and the current account rate have all been trimmed. Key rates now stand as follows: