By Jonathan Wheatley
More on the debate about whether Brazil is overheating: Henrique Meirelles, central bank governor, weighed in today on the “No, it’s not” side with an assurance that inflation was under control, delivered on the sidelines of a meeting of G20 finance ministers and central bankers in Busan, South Korea.
He would say that, of course. The central bank has fielded a lot of criticism from market economists in recent months accusing it of being behind the curve in the fight against inflation. The bank raised its policy interest rate on April 28, its first rise since the last easing cycle, which lasted from January to July last year.
Critics say even the bigger-than-usual three quarter point increase was too little and too late to deal with Brazil’s ever faster pace of growth. Read more
The ammunition dump has been trebled and still it might not be enough, reckons the head of the International Monetary Fund’s ministerial steering committee, the world’s second most famous Mr Boutros-Ghali.
Still, it’s not quite clear what Mr B-G wants to do. He is suggesting increasing the Fund’s firepower by issuing more Special Drawing Rights. But though they are often referred to as the IMF’s currency, SDRs are essentially just a form of accounting unit based on a basket of currencies, and do not represent a claim on the Fund. Creating more helps increase global liquidity, sure, as they count in governments’ foreign exchange reserves. But since they go to the IMF’s member countries in proportion to their financial quota it is the biggest members like the US and the northern European countries who will get the most. In theory they can on-lend them to countries that need them, but it’s not clear to me why this is a better way of funding European bail-outs than the traditional method of having countries lend money to the IMF directly. Read more
Today’s jobs numbers, which showed only 41,000 private sector jobs gained, were a disappointment. And where there are disappointments, there are losers. But where there are gains, there are winners! So, without further ado, this month’s list of job market winners and losers.
Winners Read more
Well that was disappointing. The private sector in the US added only 41,000 jobs in May, compared with a 218,000 gain in April, and well below economists expectations.
But, hey, gains are gains. And among those over 25, the only group for whom the unemployment rate fell were people with who had at least a bachelor’s degree. Which implies that at least some of the gains were among high-wage job seekers (or, if you like, the working rich).
So where are people who earn over $100,000 getting jobs? According to a survey from TheLadders.com, a job searching service for high-income professionals, the five cities with the strongest job markets were Seattle, San Francisco, San Diego, Washington DC and Boston. The top sectors, the group says, were aerospace and defence, biotech, e-commerce, engineering, financial services, IT and software. Read more
There is no doubt that the international wrangle over new banking regulations is hotting up. Standards for capital, liquidity and leverage are due to be settled by November and this is the big bone of contention here in Busan where G20 finance ministers are meeting. There does not seem to be a resolution in sight yet.
Everyone agrees that banking regulations need to be beefed up, but that is where consensus ends and the dissent starts. That this is difficult and threatens to blow up is clear from the delay to the higher capital requirements for banks’ trading books, which was due to be introduced in January and has now been postponed. There are disagreements over: Read more
By Jude Webber in Buenos Aires
The gospel according to Argentina goes something like this: thou shalt not default.
According to former central bank chief Martín Redrado, Argentina may be in no position to dish out recommendations to the likes of Greece, but if there is one thing it learned in its 2001 crash – the biggest sovereign default in history on nearly $100bn – it is this: default is not an option.
Argentina knows first-hand the pain involved in bailing on creditors and a disorderly exit to a fixed currency regime. The cost was economic and social chaos and it is still paying the price.
Speaking to Bloomberg Television in London, Mr Redrado said markets remained sceptical about relying on fiscal adjustment and so Greece should reschedule debt in a market-friendly way. He also noted how Latin America had moved from fixed to flexible currency regimes and was now a “beacon of stability and growth” in emerging markets. He said: Read more
By James Lamont in New Delhi
A possible emergency interest rate hike in India is back on the cards.
Data showing India had recorded 8.6 per cent economic growth in the quarter to the end of March has reignited expectations that the Reserve Bank of India might not wait for the July quarterly policy review to tighten monetary policy.
Comments by Pranab Mukherjee, the finance minister, on his arrival in South Korea for G20 talks will have only emboldened the hawks. India, after only Australia, has tightened monetary policy most aggressively in the G20. More is to come soon.
Mr Mukherjee said India would continue to raise interest rates in spite of uncertainty surrounding the wider effects of the eurozone’s debt woes to the global economy. In his view, India’s largely domestically-driven economy has very little exposure to Greece.
What Mr Mukherjee says about monetary policy counts. Read more
By Tracy Alloway
Taking a line from the Fed’s tutorial notebook — the European Central Bank has made an educational video aimed at explaining the concept of price stability to “young teenagers.”
It weirdly combines cartoons suitable for six year-olds with dialogue like:
Price stability is defined by the governing council of the European Central Bank as the year-on-year increase in the harmonised index of consumer prices for the euro area of below 2 per cent.
But at least the student protagonists get to travel from their (boring) economics classroom, back in time to what looks like the Weimar Republic, and meet the inflation monster — a toadlike purple creature: Read more
By James Lamont
India has kept its hand well hidden at the table of the G20’s deliberations over how to prevent another global financial crisis. So the acknowledgement by Pranab Mukherjee, the country’s finance minister, that a bank tax is no alternative to better regulation is illuminating.
Senior Indian policymakers have been non-committal about International Monetary Fund-backed proposals for a global banking tax. They were similarly muted when Gordon Brown, the former UK prime minister, claimed to have gained wide support among the G20 countries for a global banking tax to fund future bail outs. The UK Treasury was seeking out India as a key ally.
Part of the reason for India’s reticence is that it experienced the financial crisis very differently from the west, and even some of its Asian peers. India’s banks suffered no threat of collapse, nor earned a reputation for excessive risk or returns. Policymakers are confident of India’s own prudent regulation. They are less sure of regulation elsewhere. Read more