Daily Archives: February 16, 2010

The peso hit an all-time low against the dollar during trading today, apparently because of dollar purchases. The current rate is lower even that that which followed the Argentinian debt default and devaluation.

A moderate domestic recovery coupled with ongoing fears for the global economy have led the Turkish bank to sit tight. The borrowing rate remains at 6.5 per cent and the lending rate at 9 per cent. The committee indicated that inflation was forecast to exceed the target this month, and remain above it for some time. This is down to food prices, tax adjustments and base effects (ie. what was happening this time last year).

Libya’s central bank plans to issue two licences for foreign banks to set up units in the country. Foreign banks will have full management control of the new lenders and a 49 per cent stake, the Tripoli-based central bank told Bloomberg today. The remaining 51 per cent will be held by domestic investors. The banks, which must have international presence and a healthy credit rating, must express their interest by March 30.

Ralph Atkins

Writing in today’s Financial Times, Otmar Issing, the European Central Bank’s former chief economist, had a characteristically robust response to the question of whether Greece should ever be bailed out. No way, was basically his message.

But is Mr Issing still in harmony with current ECB thinking? I don’t necessarily think so. Most notably, Jean-Claude Trichet, president, last week endorsed eurozone leaders’ pledge “to take determined and coordinated action, if needed, to safeguard financial stability in the euro area”. That suggested he support the idea that some kind of rescue for Greece would be possible, in extremis.

Of course, no details of any rescue plan have yet been made available, and probably wouldn’t be until the last possible minute. So the ECB’s favoured policy of “constructive ambiguity” – keeping the pressure on Greece by being deliberately vague about what would happen in the worst case – remains more-or-less in place, possibly with a less ambiguity than before (we now know there is a plan). 

Sri Lanka’s central bank staff are to become proficient in Tamil, the language of the Tamil Tigers who were until recently at war with the Sri Lankan government.

It is one of several integrationist measures taken by the bank since the conflict ended last year. Another measure was a $26m re-finance fund called Northern Revival, intended to channel business loans to the Tamil-majority North through existing banks. After a flood of applications, a new but similar initiative, the Northern Regional Development Fund, is set to receive a further $100m. It will be based in Jaffna (see map). 

Imagine Ben Bernanke facing exile to Mexico for standing firm against the banks.

That is what faces Nigeria’s central banker, Lamido Sanusi: “I was not under any illusion of the power of the people I was going to fight,” he says. “I’m ready to go on exile, but we can delay the day. We must continue to fight in order protect the depositors.” 

“It makes little sense to extend the mandate of monetary policy to include financial stability. Flexible inflation targeting, applied in the right way and using all the information about financial factors that is relevant for the forecast of inflation and resource utilization at any horizon, remains the best-practice monetary policy before, during, and after the financial crisis.”

This from the deputy governor of Sweden’s central bank, Lars Svensson, addressing the Mumbai-based central banker conference last week. He observed that using interest rates and targeting inflation were not sufficient to ensure financial stability. But he did not conclude from this that central banks should widen their targets or toolkits. 

“To central bankers, inflation is a bogeyman. But to good economists, inflation is merely a variable, an economic indicator over which governments have some control and which they can manipulate to good or ill effect. The right approach to inflation is to carefully weigh the costs and benefits of a higher target and determine if, as seems likely, it would be a good idea. It strikes me as a very good thing that prominent economists are raising these questions, and it would be a better thing still if central bankers would stop running in fear from the idea of higher inflation and start engaging the arguments on the table.”

Polish President Lech Kaczynski has just appointed three new members to the central bank – and they have swiftly given their views on the economy.

Zyta Gilowska, Andrzej Kazmierczak and Adam Glapinski are the newest members of the monetary policy council. 

Just what should central banks do? Their role is increasingly being debated, often with the banks themselves seeking to expand their remit beyond price stability. But the Bank of Japan seems to be bucking the trend: governor Masaaki Shirakawa has said that deflation cannot be stopped by the Bank of Japan alone.

The comments follow a call from Japan’s finance minister, who said he wants 1 per cent inflation, and called on the Bank of Japan to do more. “I personally would like to see growth of around 1 per cent [in CPI], or perhaps even a little more,” Naoto Kan told a lower house budget committee. “I think the BoJ shares the government’s view that this is a desirable policy goal,” he said, adding that how best to achieve the goal was up to the central bank to decide.