The central bank of New Zealand is in good company: it started raising rates in the middle of the year and is now adopting a wait-and-see approach. In doing so the Kiwis join Australia, Brazil, Canada, Malaysia, Norway, South Korea, Thailand and, arguably, Sweden. These large economies all followed the same pattern: large cuts in rates during the crisis; a period of flat rates; rate rises; and now flat rates again, at a slightly higher level than the last time, but not back to levels considered normal over the past ten years.
The world’s central banks are forming distinct groups in this regard. Chile, India, Israel and Taiwan are still raising rates; Iceland and South Africa are still cutting. Other large economies – such as the US, Europe and the UK – have neither raised nor cut their rates since the crisis. Arguably there are two groups to watch for further signs of global economic stress: one, with Japan and Mexico in it, contains central banks that have started cutting rates again after a pause. The other group doesn’t exist yet among major economies: that of rate-raisers who go on to cut Read more
The Bank of Japan has unveiled details of a Y5,000bn ($61.4bn) asset-buying programme that marks its return to an unconventional “quantitative easing” policy, while keeping rates on hold and lowering its economic forecast.
The details of the scheme approved by the central bank’s policy board on Thursday were in line with initial plans it announced earlier this month that have been welcomed by Tokyo policymakers keen to see stronger monetary action to support Japan’s fragile economic recovery and combat entrenched deflation. Read more
Peter Orszag is certainly not worried about ruffling feathers in Washington. Last month, the former budget director under Barack Obama surprised the White House by taking a public stand in favour of a temporary extension of Bush-era tax cuts for wealthy Americans, which the administration opposes.
And today, Mr Orszag, now at the Council on Foreign Relations, offered a critical view of the Federal Reserve’s plans for a second round of quantitative easing in a blog post for the New York Times.
Mr Orszag’s view is that QE2 may “create more problems than it solves”, based on the notion that the effect of the Fed’s fresh round of monetary easing will be similar to “having the Treasury sell short-term T-bills and using the proceeds to buy back 10-year bonds”. Read more
Five times as many five pound notes will be dispensed by ATMs by Easter next year, according to Bank of England governor Mervyn King. That still won’t be many relative to ten- and twenty- pound notes: just 0.2 per cent of all bank notes dispensed are currently the five pound denomination.
Since 70 per cent of banknotes reach the public via cash machines, the absense of five pound notes from ATMs has constrained their circulation even though the Bank has 300 million of the notes ready. Opinion surveys show there is a particular demand for five pound notes. Read more
Rates have been held today by Poland’s central bank, but some additional liquidity will be drained from the system by the decision to increase the amount of capital banks have to keep with the central bank. The reserve ratio will be increased from 3 to 3.5 per cent, the bank said, via Google translate.
No further information was given as the press conference hasn’t happened yet.
Norway expects to hold its key rate at 2 per cent for several quarters, barring any shocks, the central bank said today. Reduced growth forecasts for the US and a world recovery “still shrouded in uncertainty” are dampening inflationary pressures. It’s becoming a familiar refrain among former rate-raisers: a moderate recovery domestically offset by continuing fears for trading partners.
Key rates are close to zero in many countries and the expected upward shift in interest rates has been deferred further ahead. Long-term interest rates are very low. The level of activity among Norway’s trading partners will probably be below normal for several years. This will contribute to holding down inflation abroad. Read more
Charlie Bean, deputy governor of the Bank of England, has just given a speech, which explains the current dilemmas of monetary and fiscal policy rather better than any I have read recently.
It is difficult to do it justice on the Blackberry, but well worth a read if you want an honest account of the difficulties both of forecasting the recession and of understanding the current circumstances.
Most important is that Bean is completely free of ‘structural deficits disease’ – the affliction under which policy makers behave as though they know how fast the economy can recover before inflation emerges or know the size of the fiscal hole that needs to be filled.
Instead, Bean says: “While judging the margin of spare capacity is always a problem for policy makers, it is particularly difficult at the current juncture because a banking crisis accompanied by a deep recession is likely to lead to some impairment of the economy’s supply capacity. Moreover, different approaches presently suggest very different degrees of supply impairment”. Quite. Read more