Daily Archives: January 4, 2011

It’s time for Poland to begin tightening – and we’re not talking a one-off rate rise, either. Central bank governor Marek Belka told Reuters today that it was time to begin a gradual monetary tightening cycle to help strengthen the zloty and cap inflationary expectations.

“The time for observing the situation in monetary policy is ending. I definitely believe that rates should be raised pre-emptively, not just in case,” Mr Belka told Reuters. Asked whether the rate rise could take place this month, Mr Belka replied: “If other “Irelands” happen then a rate hike would not achieve its goal and would not initiate zloty appreciation. For such a hike to initiate this process and be effective, it must take place at a time of stable markets.”

Mr Belka’s comments follow earlier hints, plus several bullish statements from colleagues on Poland’s monetary policy council. Read more

The Swiss National Bank no longer accepts Ireland’s government bonds as eligible collateral in its repo operations. It’s probably not earth-shaking for holders of Irish government bonds, following earlier margin calls on these assets by LCH.Clearnet last year. On the other hand, it’s an interesting window into how at least one European central bank is taking care over its collateral, unlike a few others we could mention.

Modifications to the SNB’s collateral baskets over the last year emerge in this little spreadsheet (Excel file). Several other Irish-domiciled assets also became nicht Repo-fähig in late December 2010, around the time Ireland lost its last AA- credit rating. Anglo Irish medium-term notes, Depfa bonds, etc.

The SNB’s eligible collateral criteria require that securities posted for repo have this AA- rating and that their country of domicile also bears the same rating, which seems open and shut. Until you read that the bank can make exceptions for sovereign securities rated below AA-.

 Read more

Chile’s Finance Minister says the Fed’s second round of quantitative easing put upward pressure on the peso, as he welcomed central bank plans to weaken the currency.

The peso has fallen very sharply on news that the Banco Central de Chile plans to buy $12bn in the foreign exchange markets. On the shopping list is $50m per day from January 5 to Feburary 9.

Thereafter, the central bank aims to offset the liquidity effects and “soften the impact on the prices of debt market instruments” by selling $10bn-worth of peso-denominated bonds plus $2bn-worth of short-term maturities. Read more

Ralph Atkins

The big succession battle has yet to be fought. But before eurozone political leaders choose a successor to Jean-Claude Trichet, European Central Bank president – who steps down on October 31 - they have to replace one of his colleagues. Gertrude Tumpel-Gugerell’s eight-year term as an ECB executive board member expires at the end of May. Jean-Claude Juncker, Luxembourg’s prime minister, who chairs meetings of eurozone finance ministers, has called for nominations by the middle of this month.

The choice of her successor on the six-man ECB executive board (all of whom are also governing council members) could have implications for the Trichet succession – even if they are unlikely to be game-changing. Read more

Since the Christmas break, a few developments in south-east Asia: China and Taiwan have both raised rates.

China raised its one-year base lending and deposit rates by 25bp, leaving them at 5.81 and 2.75 per cent, respectively. The People’s Bank last raised rates on October 19, also by 25bp. Other tightening measures have been used in the two-month interim, mostly increases in the reserve requirement (50bp on Nov 10, 50bp on Nov 19, 50bp on Dec 10). Read more

Almost half of leading economists believe the Bank of England has lost credibility in its inflation forecasts – a withering assessment of the central bank’s achievement of inflation control.

After the Bank persistently underestimated the strength of price pressures in the past three years, 34 out of 78 economists, or 44 per cent, said the credibility of its forecasts had been damaged by the inflationary overshoot. The most recent figure for inflation was 3.3 per cent in November, double the 1.5 per cent the Bank was forecasting as recently as February 2010. Read more