Daily Archives: January 11, 2010

Alan Beattie

Federal Reserve Bank of New York announced today that it had published the rules it had been using with primary dealers in an effort to ensure greater transparency. Primary dealers, the groups through which the Federal Reserve funds are lent to banks, garnered attention after they, too, needed loans from the Fed to stop them from “dump[ing] assets on the market in fire sales” during the financial crisis. Lending directly to primary dealers, a move only permitted in “unusual and exigent circumstances” since lending to the highly-leveraged groups could encourage excessive risk taking.

The NY Fed emphasised that the new rules “do not represent new standards expected of primary dealers” but rather a “formalisation of the existing practice.”

The newly published rules include: Read more

The Brazilian real has fallen in spite of an increased interest rate forecast, following central bank intervention in forex markets.

The Central Bank of Brazil bought US dollars this morning to cushion the impact of a large dollar sale by an investor. The currency fell 0.5 per cent to 1.7346 within the hour. Read more

Krishna Guha

Boston Fed chief Eric Rosengren thinks mortgage rates will rise by 50 to 75 basis points in the spring as the Fed stops buying MBS.

That puts him on the high side of the internal Fed debate – various committee members see the likely impact in the 25 to 75 basis point range. Read more

Twenty-one analysts have unanimously forecast a continuation of the overnight borrowing rate, at 6.5 per cent. There was some disagreement about year-end interest rates, however: in a poll of 19 analysts, one saw the rate rising to 9.0 per cent, three to 8.5 per cent, one to 8.25 per cent, 11 to 8.0 per cent, two to 7.75 per cent and one to 7.5 per cent. The weighted average forecast was 8.09 per cent.

Long queues are reported at shops in Caracas, following the surprise devaluation of the bolivar on Friday.

President Hugo Chávez announced a new multi-tiered exchange rate regime. The official value of the dollar, which has remained at 2.15 bolivars since March 2005, will now be fixed at 2.6 bolivars, a rate reserved for the import of essential goods such as food and medicine. Read more

The Central Bank Governors and Heads of Supervision yesterday welcomed progress made by the Basel Committee on Banking supervision, suggesting five areas of particular focus for the banking standards expected by the end of this year.

The Group of Central Bank Governors and Heads of Supervision (“the Group”) is the oversight body of the Basel Committee on Banking Supervision and comprises the same member jurisdictions. Read more

Taiwan’s central bank wants to limit the amount of capital China can invest in local stocks as new rules come into play that will allow Chinese investors to trade on Taiwan’s stock markets for the first time.

The Financial Supervisory Commission, which has the authority to set limits on Chinese funds, has been approached by central bank officials eager to keep controls tight, said Lu Ting-chieh, the commission’s chief secretary. Read more

The Swiss franc has fallen up to 0.3 per cent against the euro after the central bank president said policymakers would seek to prevent its “excessive appreciation”. The Swiss National Bank will “monitor foreign-exchange market developments very closely” even though it doesn’t have a currency target. The statement counters views among some traders that the Swiss National Bank had relaxed its resistance to a stronger currency.

Who said economics was boring?

Last Wednesday, the Argentine President tried to fire central bank governor Martin Redrado by decree. Mr Redrado continued to work quietly in his office, saying the authority to fire him lay with Congress. President Cristina Fernandez de Kirchner named a successor, Mario Blejer.

Mr Redrado – hitherto co-operative with government – had refused to put $6.6bn of Argentina’s $48bn foreign currency reserves toward $13bn debt obligations due to mature this year, as directed by the President. He wanted a mandate from Congress on this controversial move. On Thursday, Mr Redrado did step down, vowing to appeal.

Less than 24 hours later, Mr Redrado was back in the office. Read more

An Irish scheme to guarantee bank debts with a duration of less than three months has met with disapproval from Frankfurt. The European central bank is in favour of eurozone countries guaranteeing debt with durations between three months and one year. Ireland’s plan to guarantee even shorter term debt would mean different policies between member states.

An ECB opinion, signed by Jean-Claude Trichet, said: “Unco-ordinated decisions among members states should be avoided as they may involve a fragmentation of the euro area money market.” The ECB also noted that the scheme had no restrictions on the types of debt considered acceptable. Read more