Monthly Archives: December 2010

Merry Christmas from the Money Supply team!

We’ll see you again on January 4, 2011.

“The strongly increased risks of central banks may act as a constraint on the room for manoeuvre in future monetary policy.” That is the worst case scenario laid out by new research from the Bank of Finland. The thoughtful, comprehensive analysis of eight central banks looks at unconventional tools adopted during the crisis, concluding: “The actions by central banks during the crisis raise a number of questions concerning exit from the measures taken, the impact of the measures, central banks’ risks and independence and their governance structures.”

The turn of the year – and the final post on this blog for 2010 – make a summary of this paper seem appropriate. Which of the unconventional tools – if any – will be discarded in 2011? Read more

It’s all change in the Ukraine. Parliament has approved the replacement of the central bank chair with his deputy a year before his term had been due to end.

President Yanukovich made the request to replace Volodymyr Stelmakh on Monday, according to a statement on his website. Mr Stelmakh resigned this morning, and parliament approved the chairmanship of 34-year old Serhiy Arbuzov, with 282 of 450 legislators voting in favour. Mr Arbuzov has been first vice-governor since September of this year. Prior to this, he headed up PAO Ukrainskyi Biznes Bank, the country’s 63rd largest lender, which is based in the eastern Ukrainian city of Donetsk, Yanukovych’s home town, according to Bloomberg. Read more

Interest rates might need an “adjustment” to stem the rise in consumer prices, Brazil’s central bank has said. The country’s key selic rate has increased several times since the cuts that followed the financial crisis, but levelled off at 10.75 per cent in June.

The Bank’s inflation report, released yesterday, suggested such a rise was imminent:

Under the inflation targeting regime, deviations in projected inflation from the target of such magnitude suggest the need for implementation, in the short-run, of an adjustment in the basic interest rate, in order to control the growth pace mismatch between the domestic demand and the productive capacity of the Brazilian economy, as well as to reinforce the anchorage of inflation expectations.

Some analysts have interpreted this as a January rate rise.

Banco Central do Brasil explained that the balance of risks associated with inflation had “evolved unfavorably since the release of last Report”. Read more

Poland held rates but appeared bullish; the Czech Republic held; and Croatia has cut the rate it pays to commercial banks on their mandatory monetary reserves in local currency to 0.25 per cent from 0.75 per cent.

Meanwhile, Hungary has received a ticking off from the ECB for tardy timekeeping, and the Ukrainian President is apparently trying to replace his central bank governor with an ally. Read more

Hawkish comments from Poland’s central bank governor, following ambiguous data from the last minutes. The Bank kept its reference rate on hold at 3.5 per cent, as expected, but comments from Marek Belka suggest a rate rise is on the horizon.

Commenting on what he said was a decreased risk of strong capital inflows into Poland in the event of an interest rate rise, Reuters reports the governor telling a news conference: “This changes slightly the risk balance in favour of rate hikes or in favour of the start of a tightening cycle.” Mr Belka also reiterated his view that the Polish zloty has strong potential to appreciate. Read more

There are 5,193 more central bankers now than last year, apparently, with the world total standing at 340,342. This from data contained in the Central Banking directory 2011, published today, which suggest the 1.5 per cent rise this year is universal, evident across regions and among large and small central banks.

The expansion is a modest reversal of the trend in recent years. Central banker numbers have been dwindling, by 241,900 or 39 per cent over the past decade. Read more

Chris Giles

The mushy middle on the Monetary Policy Committee is still dominant. Seven of the nine members voted to keep interest rates at 0.5 per cent at the December meeting, with Adam Posen dissenting by calling for more quantitative easing and Andrew Sentance preferring a tightening of monetary policy. So far, so boring.

But in this unchanged stand off, the majority of the Committee have moved modestly towards greater concern on inflation. The key sentence is this: Read more