Daily Archives: January 26, 2010

Simone Baribeau

The term of Ben Bernanke, the chairman of the Federal Reserve, expires on Sunday and it is, as yet, unclear who will take the helm of the Fed if he is not confirmed by the Senate before the end of the month. So where does he stand on the Tuesday before his term ends?

Senate votes so far: Yes – 42. No – 17. Undecided/unannounced – 40. (Source: Reuters poll) Read more

Ralph Atkins

An old debate at the European Central Bank has just been reignited by Axel Weber, Bundesbank president. Speaking at a media prize ceremony in Hamburg he has repeated his concern about the use of “code words” to signal likely future interest rate movements.

This was a big issue when the ECB was raising borrowing costs between the end of 2005 and July 2008. A warning by Jean-Claude Trichet, president, that the governing council was exercising “strong vigilance” was as near as you could get to confirmation that interest rates would rise a month later.

Mr Weber argued in Hamburg that such tactics allowed the ECB to manage expectations without committing itself. The danger was that financial markets became too focused on listening for code words, rather than analysing properly the economic situation. Read more

Simone Baribeau

The Congressional Budget Office today released its outlook for the budget deficit. No surprise: the deficit, as a proportion of GDP, is expected to fall considerably from 9.9 per cent in 2009 to 2.6 per cent in 2015, after which it will rise again.
What’s going to make it go up after 2015? Health care, of course. Here’s a pretty phenomenal graph Read more

The Central Bank of Kenyan has kept the central bank rate at 7 per cent in spite of falling inflation and rising growth. Inflation has fallen dramatically, partly because of a change in the way it’s calculated, which has brought the rate down from 17.9 per cent in September to 5.3 per cent in December. Inflation is expected to continue to fall. The central bank rate was cut sharply at the last meeting in November, down by 0.75 percentage points, which probably explains the decision to keep rates steady.

Comments from South Africa’s central bank governor reveal fierce disagreement among board members on whether to hold or cut the repo rate.

Governor Gill Marcus said:”It was not a unanimous decision. There were very strong views in terms of an interest rate cut. At the end we agreed that in this point of time, the prevailing view was to hold. There was no discussion of an interest rate increase.” Read more

Poland’s central bank held the benchmark seven-day reference rate at 3.5 per cent for the seventh month, as expected. The Bank noted risks for the global recovery as central banks start to mop up the money injected during the crisis.

Policymakers are expecting inflation to continue to slow toward their target, having accelerated in December, touching a the upper end of the bank’s 1.5 – 3.5 per cent target.

“We should expect more serious discussion at the next monthly meeting as the new Council will be fully constituted and it will know the new inflation projection,” said Lukasz Tarnawa, chief economist at PKO Bank Polski in Warsaw. He predicts rates will stay on hold all year.

Traders aren’t so sure. Read more

There is more support for a US-style levy than for a tax on transactions. So says Bank of England governor Mervyn King, who has welcomed President Obama’s proposal to overhaul the banking sector, the ‘Volcker plan‘.

In a Commons hearing on the “too big to fail” debate, Mr King said: “The proposals made it very clear that radical reform is on the table. One way or another we have to reform the financial system,” he added, cautioning that “not one proposal will solve all problems”. Read more

A recovery has been evident in the data for months and now it has finally been confirmed by the Office for National Statistics, but only just. It has just reported the economy grew by 0.1 per cent in the fourth quarter of 2009. Will it signal an end to the sniping between economists and the ONS over the quality of its data? Not really, economists think growth was faster and will expect the ONS to revise these figures higher in the months and years to come. But for now, what does this new data tell us about Britain’s economic prospects? Not much.

Monetary policy will not be changed. The Bank of England expected a recovery, one that was quite a bit faster than has been reported, but it will also expect these figures to be revised higher. The implication is that the Bank will do very little until the election, probably pausing the active process of purchasing assets under quantitative easing next week. Read more

The Malaysian central bank has kept the overnight policy rate at 2 per cent. In an upbeat statement, the Bank said inflation had turned positive, the economy was expanding, and domestic indicators were good. Uncertainty remained, however, with the recovery of developed economies, and so Bank Negara Malaysia said: “Monetary policy would remain accommodative to ensure threat the economic recovery is well entrenched.”

Standard Poor’s ratings agency cut its outlook on Japan’s AA long-term sovereign debt rating to negative from stable, citing reduced wiggle room on fiscal policy and voicing disappointment with the government’s budget
consolidation plans. The yen fell sharply against the dollar and the euro, although analysts said they expected financial markets to take the news in their stride (from Reuters).

Robin Harding

In essence, the Bank of Japan has done nothing and said nothing after its monthly meeting today. Policy remains on hold and pretty much the only change in language is to note the effect of higher oil prices on deflation (it’s a bit less severe).

Of more interest are the new forecasts of the policy board:

Policy board members make point estimates, the highest and lowest are excluded, and the numbers given are the range and median of what is left. Read more