Daily Archives: January 14, 2010

The Latvian central bank has agreed to keep interest rates and reserve requirements unchanged. The Bank of Latvia said that substantial rate reductions had already taken place and lending rates were close to those set by the Bank. Liquidity was also seen to be sufficient, and had in fact “been high in recent months”. The Bank said: “The low lending activity is currently determined not by interest rates but by the cautious lending policies of banks in the complicated economic circumstances as well as by the low demand for loans both from households and businesses.”

Rates are as follows:

Taiwan plans to set a limit on the total value of securities Chinese investors can buy under new rules due to come into force on Saturday.

Wu Tang-chieh, deputy chairman of the Financial Supervisory Commission, told this to Bloomberg but did not provide a figure and would not comment on a report in the Commercial Times that the central bank is proposing a ceiling of $500 million shares in Taiwan-listed companies. The ceiling in the current memorandum is $1bn. Read more

California’s $20bn budget deficit and looming cashflow problems have led Standard and Poors to downgrade the state’s general obligation bonds to A-. The ratings agency has given the bonds a negative outlook, suggesting further declines are possible. The cut brings the S&P rating more in line with that of Moody’s (Baa1) and Fitch (BBB) – and closer to that of Greece, which could help to explain the paradox Ralph outlined in December.

The Bank of Thailand has agreed to keep the one-day repurchase rate unchanged at 1.25 per cent. The bank saw continued recovery ahead, driven by exports, tourism and consumption but noted that: “Asian economies are likely to recover sooner, giving rise to policy differentials which may lead to more volatile capital flows going forward.” The bank expects inflation to rise in 2010 although upward pressure from demand currently remains low.

Part of the Chinese central bank has scrapped a controversial proposal to allow Chinese citizens to buy shares listed in Hong Kong. The State Administration of Foreign Exchange, a body under the central bank, said the potentially groundbreaking proposal was one of 19 documents that were invalid as they had expired. The Taiwanese will be paying close attention: they want to limit stock purchases by Chinese citizens under new rules due to come into force on Saturday.

Robin Harding

Following on from yesterday’s post about the chances of a Japanese sovereign debt crisis (possibly ending in hyperinflation) – given that the national debt is almost all owed domestically – can anyone think of a comparable historical episode?

We’re looking for a case where sustained fiscal deficits led to a bond market/currency crisis – but where almost all of the national debt was held by the country’s own citizens, the country was a net creditor to the rest of the world with a positive trade balance, and the national currency had no hard currency link (to gold or the dollar). Read more

Simone Baribeau

Bloomberg has an interesting article about the Senate looking to hold a confirmation vote on Ben Bernanke before his term ends at the end of the month. The piece notes that a delay in the vote would probably result in Donald Kohn, the Fed’s Vice Chairman, serving as acting chair until the Senate confirms Bernanke (who would continue serving as a governor).

Mr Kohn’s temporary succession would hardly be a coup for Mr Bernanke’s Senate critics. The vice chairman, closely aligned with Alan Greenspan, showed no greater concern for the risk of a recession than did Mr Bernanke (he saw inflation as a greater worry in October 2006), nor was he faster to recognise the extent to which homes were overpriced (saying the evidence suggested that overbuilding in 2004 and 2005 would be worked off without a significant decline from 2006 building levels). Read more