Daily Archives: February 19, 2010

Ratings agency Standard and Poor’s have increased Turkey’s currency rating to BB and BB+ for foreign and local currencies, respectively. In both cases this is a one-notch increase. The outlook on both is positive, meaning barring any changes, S&P would expect to make a further upgrade within 12-24 months. Read more

The Mexican central bank has held the interbank interest rate at 4.5 per cent, as expected. Inflation is above target and rising, at an annual rate of 4.46 per cent for January. In its press release, the monetary policy board said action may be taken to achieve the target inflation rate of 3 per cent by the end of next year*.

*NB. This was translated using Google translate – no English version is yet available

The Treasury expects a short vacancy on the monetary policy committee following the announcement that Kate Barker is to step down at the end of her term on May 31. Ms Barker is serving her third term on the nine-member rate-setting committee, having started June 1, 2001.

Her voting pattern over the past year and a half shows she has tended to vote in line with the majority – and with the final vote. Any speculation as to her likely replacement, and where they are on the hawk/dove spectrum?

Simone Baribeau

US consumer prices rose just 0.2 per cent this month, with prices excluding food and energy falling 0.1 per cent (their first fall in over a quarter century). The numbers show that, in January at least, inflationary pressures weren’t an issue. But, as it does monthly, the CPI has reignited the debate: longer-term will the problem be inflation or deflation?

“Hawks and doves will split between half full and half empty in January, as hawks will focus on the continued headline gains led by the key bellwethers of food and energy, while doves will strip out volatile commodity prices and focus on the 0.1 per cent drop in both apparel prices and the theoretical construction of owners equivalent rent,” wrote Mike Englund of Action Economics. Read more

The Bank of Ghana has cut the main policy rate from 18 to 16 per cent, hoping banks will reduce their rates too, helping to restore credit growth to the economy.

The bank is keen to push falling inflation down further. Annual inflation stood at 18 per cent in October, falling each month to 16.9, 15.9 and 14.8 per cent in January. The target range is 7.5 – 11.5 per cent. Read more

Simone Baribeau

William C Dudley, president of the New York Federal Reserve, gave a particularly non-populist speech today in Puerto Rico. Giving non-populist speeches is, of course, the job of FOMC members: they worry about keeping the economy on track in the long-term, freed from short-term political considerations. But even so, Mr Dudley’s speech was candid.

After speaking at length about the ways in which failures in the US had negatively impacted the Puerto Rican economy, he suggested the US territory make a number of changes to mitigate the damage. Among them:

1. Raise taxes on lower-income workers.

Of course, he’s slightly more politic than that, but only just. Read more

Is it the gunfight at the OK Corall? Or Ali vs Fraser? Or perhaps King Kong against Godzilla? Choose your own inappropriate metaphor, but today’s letters from more than 60 economists to the FT arguing strongly against major action to cut the deficit this year has clearly touched a nerve in what is perhaps the biggest issue facing the UK economically and politically for the next few years.

Following the letter by 20 economists to the Sunday Times at the weekend, today’s letters highlight the division in the economics profession between fiscal hawks and those who are more worried about the economy’s ability to restart after one of the deepest recessions of modern times. Read more

Greek structured finance transactions with AAA ratings have been downgraded to AA by Standard and Poors. The downgrade affects AAA tranches of asset-backed securities and residential mortgage-backed securities. All other tranches, with ratings below AAA, have been affirmed by the ratings agency. The news comes shortly after Moody’s announcement of a rating review for possible downgrade for Greek structured finance.

Moody’s Investors Service today placed the Aaa ratings of Greek asset-backed securities, residential mortgage-backed securities, collateralised loan obligations and covered bond transactions under review for possible downgrade. All such products bar one are included. (Moody’s does not rate any Greek commercial mortgage-backed securities.)

No new Aaa ratings will be issued to these structured finance transactions or covered bonds until a review – started February 4 – is completed. On completion, “existing and future ratings will be assessed using the new criteria,” says Moody’s.

The Russian central bank has agreed to cut its refinancing rate from 8.75 to 8.5 per cent, effective February 24. The main one-day repo rate is down from 6 to 5.75 per cent.

The rouble has been strengthening in recent days, possibly leading to a $2bn sale of the currency by Bank Rossii yesterday. Read more

A troubling chart from Thomson Reuters this morning, showing Spain facing $203.7bn maturing syndicated debt in the coming six years. That is roughly a fifth of the country’s annual gross domestic product (which was $261.5m for Q4 last year). Italy is second with $95.9bn over the same period. Greece – orange on the chart – is almost insignificant in context.

Chart courtesy of Thomson Reuters; source Thomson Reuters LPC/DealScan
Maturing loans are significant as new debt will be needed to plug the gap. Countries perceived as risky will pay a higher ‘new issue premium’, as a mooted deal in Greece is currently showing. Two questions: who will be these countries’ creditor (China?)? And what are the figures for the UK & US (I’m working on this one)?