Daily Archives: October 19, 2010

Chris Giles

In a balanced speech just published, Mervyn King has coined yet another acronym to describe the UK economy. The acronym is “sober”. More on this later, but at the beginning of the speech, there are some issues with the tense the Bank of England governor chooses to use, which I foresee people taking out of context. He says:

“I find myself in the opposite situation having to explain that there is too little money in the economy.”

This sentence appears to be a signal of more quantitative easing to come in Britain, since if there is too little money in the economy, the Bank should pump some more in. But speaking to Bank officials, I am assured there is no signal in the words and the use of the present tense signifies nothing.

Later in the speech, Mr King is, in any case, Read more

The impact of foreclosure documentation problems on the housing market is “still uncertain” and may cast a cloud over the sector for “the foreseeable future”, said William Dudley, president of the Federal Reserve Bank of New York.

Mr Dudley, a member of the Fed’s policy-setting Federal Open Market Committee, is a supporter of further monetary easing, saying recently “further action is likely to be warranted” by the central bank. This was interpreted as a sign that purchases of US Treasuries by the Fed – quantitative easing – would step up in November. Read more

A fully electronic trading platform dedicated to Shariah-compliant products has just been launched by Bahraini exchange BFX, which was itself only launched earlier this year. The central bank of the tiny island state will be regulating trading activity on the new platform, e-Tayseer, of the new Islamic finance division, Bait al-Bursa.

e-Tayseer, aimed at the Middle Eastern and North African markets, will initially offer automated murabaha transactions. This is the region’s first exchange-operated platform dedicated to Islamic finance products. Read more

China will raise its benchmark one-year lending and deposit rates by 25 basis points effective Wednesday, the People’s Bank of China has said. The move takes the one-year deposit rate to 2.5 per cent, and the one-year lending rate to 5.56 per cent.

Raising rates will dampen domestic demand for credit, which has remained high despite efforts to restrict bank lending. A different tightening measure was reported last week, when China’s central bank temporarily raised the reserve requirement by 50bp for six major banks. This also removes money from the system and restricts credit availability.

The recent weakening of the dollar will have added to existing inflationary pressures in China. The renminbi closely tracks the dollar; if it were free-floating, the Chinese currency would have strengthened as the dollar fell. Annual inflation was reported as 3.5 per cent in August. September’s data is due out on Thursday, and expectations are for a slight rise.

In a slight twist to a straightforward tale of monetary policy, one Reuters interviewee has suggested we are witnessing the result of a Sino-American agreement. Read more

The IMF has tried to rally the troops at a meeting in China, urging central bankers to maintain the international co-operation forged during the financial crisis, and looking to Asia to lead the way.

At an IMF-sponsored meeting of central bankers and regulatory luminaries in Shanghai, an “important consensus” was reached, according to PBoC deputy governor Yi Gang, on the need for international co-operation in ensuring strong macro-prudential policies, because systemic risks “are very likely to spread over borders.” In practice, this means central banks and national regulators taking on more international roles.

Central banks also need to take a broader view domestically, said IMF managing director Dominique Strauss Kahn, seeming to suggest that financial stability would be part of central banks’ remits going forward. “Clearly, conventional macroeconomic policies and macro-prudential tools are intrinsically linked, just as price stability and financial stability are intrinsically linked,” Strauss-Kahn said. “We need a holistic approach, which means a changing role for central banks in the years ahead.” Read more

Markets were surprised when the Reserve Bank of Australia held rates on October 5, but minutes just released show there had been no sudden change of heart at the Bank. The debate was ‘finely balanced’, with several members arguing for a rise, but the moderates prevailing in their desire for a delay to the rate rise.

Australia’s central bank said it ‘could not wait indefinitely’ to raise rates but members ‘felt they had the flexibility [to wait] on this occasion’:

As in the previous month, members concluded that interest rates would need to rise at some point if the economy evolved in line with the central scenario of a gradual tightening in resource utilisation, as this would most likely result in a gradual strengthening of inflation pressures.

The timing of adjustment remained a matter of judgement.

 Read more