Daily Archives: February 10, 2010

Many commercial banks in India will pay more for loans from April 1, when the central bank implements a new system for pricing credit.

A base rate will be introduced by the central bank, and all loans made in India will be priced relative to – and above – that base rate. S.A. Bhat, chairman and managing director of state-run Indian Overseas Bank, told Reuters: “A back-of-the-envelope calculation shows that the base rate will be at around 10-11 per cent.” Read more

The Netherlands’ central bank has just said it wasn’t fully informed by Landsbanki Islands HF and Iceland’s regulator FME on Landsbanki’s financial position. “The evaluation of Mrs. De Moor and Mr Du Perron from Iceland confirms that the information was inadequate,” says the statement (if Google translate can be trusted). The statement comes less than a week after Nout Wellink, Dutch central bank governor, accused the Icelandic government of lying.

Once it stops snowing, Ben Bernanke will talk – with great conditionality – about possible exit strategies from the various measures the Fed has introduced since the crisis. Each of the measures will enjoy very different exits.

First, the Fed’s provision of temporary lending (paragraph 10). “The exit from these programs is substantially complete,” Bernanke will say, at no loss to the Fed, and no expected loss in future. Peaking at $1,000-$1,500bn at the end of 2008, total credit outstanding now stands at $110bn.

Second, buying securities. The Fed made large-scale purchases of Treasury and agency securities to increase the stimulus (par 3). But “I currently do not anticipate that the Federal Reserve will sell any of its security holdings in the near term,” Mr Bernanke will say (par 20). Securities will be allowed to roll-off or mature, but selling them off – for further tightening – would only be possible once policy tightening is underway and the economy is safe.

Third, exceptionally low interest rates (par 19). The exit strategy is to get markets ready by soaking up excess reserves Read more

Vietnam’s central bank said on Wednesday it was devaluing the dong’s mid-point reference rate by more than 3 per cent to 18,544 per dollar from 17,941 effective on Thursday. The move was designed to help balance supply and demand of foreign exchange, increase the liquidity of foreign exchange in the market and contribute to controling the trade deficit and stabilising the macroeconomy, the bank told Reuters.

Vietnam devalued the dong by more than 5 per cent in November of last year.

UPDATE 13:45

Mr Bean was indeed describing the forecast accurately. As far as I can tell from judicious use of my ruler, the Bank’s risk-adjusted forecast (the mean of the forecast distribution) is for growth of 1.3 per cent in 2010, 3 per cent in 2011 and 2.9 per cent in 2012. In November, the equivalent figures were 1.5 per cent, 3.1 per cent and 2.6 per cent.

So the Bank has brought its central most-likely forecast closer into line with outside forecasters. Predicting a boom always seems rather odd. But it has not revised down its view of the average growth forecast much. The mean forecast is, of course, purely an MPC judgement about the variance and the skew of the forecast having taken the mode forecast from the Banks models.

It suggests the MPC has a similar outlook for economic growth and inflation than it had in November based on the assumption that interest rates stay lower for longer.

Again the Bank is a bit like a reverse Toyota. It’s got it foot slammed even harder on the accelerator pedal, but the link between its action and growth has broken down. Read more

After Mervyn King said it was “far too soon” to rule out further quantitative easing, the chief economist of the Institute of Directors said he believes quantitative easing will be extended and that a ‘W’ or even ‘VW’ recovery is likely. Responding to the latest inflation report, Graeme Leach said:

“We agree with the governor of the Bank of England that it is far too soon to conclude that a further extension in quantitative easing won’t be required. We think that it will, and that the risk of a double-dip or even a triple-tumble recession and recovery remains high.”

Credit and finance constraints are a growing concern among companies, judging by the below BoE survey data. Read more

People in the UK are paying ever higher interest rates in comparison with the base rate, according to the Bank of England’s latest inflation report.

Data for the latest month shows an increase in credit card rates of 15bp with an equal and opposite decrease for personal loans, other rates being static. But the general trend is of widening spreads, as is clear from the second chart.

Spreads are widening between the rates charged on overdrafts, credit cards and personal loans (“consumer credit”) and the base rate. Rates charged on variable-rate mortgages (pink line) are historically wide, although not yet rising. (Experience in Australia suggests the spread will widen once the base rate begins to increase.)

The falling supply of consumer credit (green line, first chart) may help to explain rising rates Read more

Bank of England governor Mervyn King taking a break from the G7 meeting at Iqaluit. There are so many tempting analogies….

Officials in Berlin have admitted they are looking at how to construct a “firewall” to prevent the Greek debt crisis spiralling out of control, raising hopes in the markets of a European rescue plan for Greece.

Current discussions concern reducing contagion rather than helping Greece, however. “We’re thinking about what we should do if the crisis spills from Greece into other euro countries. So it’s more about finding firewalls, containing the problem, than principally about helping the Greeks,” said one official. He added there were “no concrete plans” as yet. Read more