Daily Archives: June 10, 2010

Former prime minister Marek Belka has been voted in as the new governor of Poland’s central bank, by a clear majority in the lower house (253 to 184). Mr Belka is a well-known international figure, serving as the IMF’s director for European Department since 2008. Prior to that he was under-secretary general at the UN and executive secretary of the UN Economic Commission for Europe.

Mr Belka replaces Sławomir Skrzypek, who was killed in the Polish air disaster in April, and his deputy Piotr Wiesiolek had been acting governor. 

Ralph Atkins

Compared with the past few monthly press conferences, Jean-Claude Trichet had a smooth ride today (maybe the sweltering heat in Frankfurt added to the slightly soporific atmosphere).

In Lisbon in May, the European Central Bank president faced awkward questions on the ECB’s concessions to Greece and just how it was reacting to fast-moving financial market conditions. This time the message was clearer: the ECB is on standby and keeping its emergency measures in place.

The main news was about additional offers of unlimited three-month liquidity, which will cover the period until the end of the year. On the controversial government bond purchases, there was no additional detail. Just as it would with foreign currency intervention, the ECB is maintaining an air of mystery. But there are other benefits from its policy of silence: those (in Germany) who worry about the inflation impact can hope there’s a good chance of programme being unwound, while those (everywhere else) who think the programme will have to be stepped up, can also keep their hopes alive.

On the euro, Mr Trichet was also in “keep calm” mode. 

Failure to predict change, ignoring the worst-case scenario and assuming certain tasks were someone else’s responsibility are sins at the root of the Irish banking crisis – and they were perpetrated by bankers, central bankers, regulators and politicians alike.

These are themes repeated in a report into the crisis by new central bank governor Patrick Honohan. The report is one of two released yesterday, the other by Klaus Regling and Max Watson. Both are precursors to a statutory investigation.

Mr Honohan says that bank management failed to maintain ‘safe and sound’ practices; that government policies were unduly ‘accommodative and procyclical’; that regulators were ‘deferential’ and unwilling to rock the boat; and, perhaps most significantly, that the central bank and regulator (CBFSAI):

do not appear to have realised – or at least could not bring themselves to acknowledge – before mid-2007 at the very earliest, not only how close the system was to the edge, but also the extent to which the task of pulling it back from the edge fell to the CBFSAI

Some of Mr Honohan’s points seem guilty of ‘confirmation bias’ – they are 

Still on hold: that’s the message from the Bank of England for both rates and the £200bn stock of asset purchases and from the ECB, holding at 1 per cent. The Fed, of course, is still holding. So too the SNB.

Against this background, the developed/developing distinction seems less and less useful. Economies are neatly diverging instead according to their current interest rate policy. Ask whether they are raising or lowering and you can place them squarely in context. 

Investors may wonder why the euro is not trading even lower given the almost universal bearish sentiment on the single currency. The answer could lie in Switzerland.

The Swiss National Bank shocked the market on Tuesday by announcing that, as a result of its intervention in the foreign exchange markets, its currency reserves leapt more than 50 per cent last month from $145.6bn in April to $261.9bn in May. 

For the second time in a row, Brazil’s central bank has raised the Selic target rate by 75bp, as the economy expands rapidly and fears of inflation mount.

Historically, interest rates in the country are still low (see chart). Rates were last at 10.25 per cent in April of last year. The inflation target is currently 4.5 per cent +/- 2 per cent, and the data to May was rising, but within target, at 5.17 per cent.