Daily Archives: July 22, 2010

G20 nations must implement policies agreed at the latest summit, otherwise “large imbalances may re-emerge, with the attendant risk of disorderly adjustment.”

This from the Bank of Canada’s latest Monetary Policy Report, which finds Canadian growth “proceeding largely as anticipated” and risks to Canada’s economy roughly balanced. Read more

Creating a central fiscal agency for the eurozone is one of two solutions suggested in a new staff paper from the IMF. The current (decentralised) system doesn’t work properly, argues the paper, because buffers are not built up in good times; there is insufficient central risk management; and decentralised crisis response is inefficient, increasing the chance of ad hoc bail-outs.

“The case for binding fiscal constraints in a fiscally decentralized monetary union ultimately rests on the fact that all members’ solvency constraints need to be simultaneously satisfied, effectively exposing the credibility of the common currency to fiscal policy mistakes by the weakest performer,” reads the paper.

Centralising European functions has two proposed elements: a central fiscal agency, and the creation of a single European bond. Such moves would require changes to the Treaty on the Functioning of the European Union. Less radical suggestions, requiring minimal legislative changes, include broader sanctions such as financial penalties in good times, and reduced voting rights in bad times. Read more

With a short, sweet statement, the Bank of Brazil raised the key policy rate to 10.75 per cent late yesterday. A rise had been expected – some thought the rate would go to 11 per cent, in line with the two previous 75bp rises – to combat inflation. “Assessing the macroeconomic situation and prospects for inflation, the Committee decided unanimously to raise the Selic rate to 10.75% pa, without bias,” reads the statement (according to Google Translate).

This is the third consecutive rise since April 29, when the Selic target rate stood at 8.75 per cent; the rate was last increased on June 10.