Monthly Archives: January 2011

Bulgaria has nudged up its interest rates. The base rate will be 0.19 per cent in February, up from 0.18 per cent in January and December, and 0.17 per cent the month before that.

The country pegs its currency, the lev, to the euro, and hopes to join the single currency in the next few years. Initially, the aim was for 2012, but now 2013 or even 2014 look more likely. Read more

Robin Harding

December core PCE came in at at a new low of +0.7 per cent on a year ago. The Dallas Fed trimmed mean PCE was steady at +0.8 per cent on a year ago, but the six-month annualised rate ticked up to +1.0 per cent, which is an interesting trend.

I post these numbers so often because an end to disinflation is the goal of QE2 that remains to be achieved. Plenty of analysts anticipate a stabilisation – in particular they expect the large housing component of PCE to stop dragging it down – but there are still only hints of this in the data.

If core PCE continues to drift downward in the next few months to, let’s say, 0.5 per cent in April, then I think there are FOMC members whose instinct would be to go beyond $600bn. Read more

Eurozone inflation has pushed further above the European Central Bank’s target in January, exacerbating its discomfort in the wake of strong rises in oil and food prices.

Annual inflation in the 17-country region reached 2.4 per cent, the highest for more than two years and clearly beyond the ECB’s target of a rate “below but close” to 2 per cent, driven in part by rising inflation in GermanyRead more

Back to zero for the ECB, as latest data reveal the central bank didn’t buy any government bonds settling last week under the Securities Markets Programme.

Yields on government bonds – which ECB purchases act to depress – remain near record highs in several southern European countries, and in Belgium. In Portugal, in particular, yields remain above the important psychological level of 7 per cent. Read more

Russia has surprised markets by holding rates after a number of bullish hints in recent months. The central bank has, however, raised reserve requirements, joining a long list of emerging markets adopting this as their favoured tightening tool.

Bank Rossii is targeting hot money with the move: it has raised the reserve ratio more sharply for corporate non-residents than for ruble-only, individual or other types of liability. From February 1, banks will have to store 3.5 per cent of non-resident rouble and forex corporate liabilities with the central bank, a 1 percentage point increase. Other types of bank liability – such as those in roubles from individuals – will be raised half a point to 3 per cent. Use the dropdown on the chart below to explore historical reserve requirements at the Bank of Russia.

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MPC member Martin Weale’s next vote is unclear, as forthcoming economic data will need to be balanced against the longstanding risk of higher inflation.

In an article for the Guardian, Mr Weale explains his concerns about price rises, saying: “There is a risk that continuing rapid economic development in China and elsewhere will lead to persistent upward pressure on commodity prices,” which could lead to higher inflation expectations. “The cost of a small rise now,” he says, “would be lower than the eventual price of addressing higher ingrained inflation.”

At the last MPC meeting, Mr Weale joined Andrew Sentance in voting for a 25bp rate rise. Shortly thereafter, preliminary UK growth figures suggested the economy shrank in December – a surprise to analysts, economists and journalists alike. A contraction – if sustained – removes much of the basis for a tightening of monetary policy, leaving Mr Weale’s decision seemingly at odds with economic reality.

Central bankers are not fortune-tellers, though, as Mr Weale’s article points out. “Economic policy needs to respond to the facts; to ignore them would be absurd. But how much weight should be placed on the most recent data, which may be erratic and subject to revision?” Some may find Mr Weale’s indecision alarming, but personally it is a relief to see central bankers tussling with so many factors. Their struggle is a sign of their awareness. Read more

Robin Harding

I went for strong in writing up today’s preliminary Q4 numbers but there was enough going on in the release to argue it either way.

The case for strong is this:

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Israel’s foreign currency reserves stood at $70.9bn at the end of December, according to Bloomberg – but they may well be needed.

Central bank governor Stanley Fischer has warned that capital inflows could reverse sharply, leading the Bank to sell its reserves to try to slow any sudden weakening of the shekel. “One of the things that does concern us is that we have a lot of money coming in,” Mr Fischer told Bloomberg Radio in Davos. “If opinions change quickly money goes right back out and it could go out very fast.” Read more