Daily Archives: September 23, 2010

Minutes from Poland central bank show some MPC members favoured a rate rise at the August 24 meeting. A  motion to raise rates by 50bp was put to the vote and rejected; the refinancing rate remained at 3.5 per cent.
From the minutes:

While considering the decision on interest rates, some Council members argued that the present GDP growth, with a possibility of its acceleration and a likely reduced potential output growth, could contribute to a rise in inflationary pressure in the monetary policy transmission horizon. Those members emphasized that the current level of interest rates was adequate for a situation of strong slowdown in the growth of the Polish economy and the recession in its environment, and that given recovery gaining strength in Poland it was justified to increase the NBP interest rates. Read more

First, Germany leads the euro area to a jump in GDP in Q2. Then, just a month later, a sharp fall in Germany’s PMI leads a drop in the index for the eurozone as a whole. The Purchasing Managers’ Index is not, of course, GDP. It is a survey of 4,500-odd buyers in the eurozone on a number of measures. But historically the two are closely linked. So what’s going on?

Ralph offers some insights on ft.com. First, we may be seeing an expected cooling from the rapid expansion seen earlier in the year. Second, he writes:

Earlier this week, the Bundesbank warned that the pace of German economic growth had weakened “markedly”. But it ascribed the slowdown to weaker global prospects and said the recovery remained “intact”. Although German policymakers worry about the county’s exposure to a fall in demand for its export goods, evidence is growing that the recovery is broadening with increases in real wages and falling unemployment gradually feeding through into stronger consumer spending.

 Read more

UK inflation has persistently been higher than almost everyone, and certainly the Bank of England, has expected. This has raised two perfectly reasonable questions. Does Britain have an inflation problem again? And is the Bank of England turning a blind eye to it?

Spencer Dale, the Bank’s chief economist, rejected the latter charge with some gusto last night.

“To borrow from a phrase of a previous Prime Minister, ask me my three main priorities for monetary policy and I will tell you: inflation, inflation, inflation.”

Then again, imagine what a central banker who had gone soft on inflation would say. Something along the lines of:

“To borrow from a phrase of a previous Prime Minister, ask me my three main priorities for monetary policy and I will tell you: inflation, inflation, inflation.”

So Mr Dale’s central claim is devoid of content in answering the questions. What about the substance of his speech?

Mr Dale gave a clear account of his views. First, he said Read more

Ralph Atkins

Since the launch of the euro in 1999, economists have debated whether a “one-size-fits-all” monetary policy can work for so many economies; Estonia’s entry from January will take eurozone membership to 17 countries. The answer given by Jean-Claude Trichet, European Central Bank, has always been: mais bien sûr! Eurozone growth and inflation divergences are no greater than between US state, he argues. But life is not as simple as that in the eurozone.

Barclays Capital has just published an extensive review of divergences in growth rates, inflation and labour markets (looking also at the persistence of divergences). It finds something to support both sides of the argument. Eurozone growth rates, for instance, have converged – although the process may have gone into reverse as a result of the credit and construction booms and busts in Spain and Ireland. Divergences in eurozone labour markets, however, are greater in the US.

What makes the study interesting is that Barclays Capital then goes on to calculate what would be the appropriate interest rates for the 11 largest eurozone countries – using the so-called “Taylor rule” by which interest rates are set according to the inflation rate and “output gap” (roughly, the amount of slack in the economy). The report finds a much greater variation than would be the case for the 11 biggest US states. The reasons Read more

Turkey has increased the proportion of deposits banks must store with the central bank, in a move that will soak up some of the liquidity provided since the crisis. The required reserve ratio has increased from 5 to 5.5 per cent for lira-denominated deposits and from 10 to 11 per cent for deposits in foreign currency.

Turkey has not started raising rates since the crisis. Last week, the one-week repo (policy) rate was kept constant at 7 per cent, but overnight borrowing and lending rates were cut 25bpRead more