Daily Archives: January 13, 2011

Confidence in Ireland could plummet today if the PM faces a vote of no confidence. Political uncertainty, as Belgium has shown, can seriously undermine the market’s faith in a country’s finances. And market reaction seems to be the main call to action for EU politicians. And just when we thought focus had switched to Portugal.

Now Ireland, as we know, has been bailed out already. Its funding is pretty well lined up – importantly, from diverse sources. The weak point is the banks. As long as any handover is smooth and quick, a change of government could be relatively painless for Ireland. Read more

The euro surged higher on Thursday, hitting a one-month high against the Swiss franc after Jean-Claude Trichet, chairman of the European Central Bank, warned of inflationary risks in the eurozone.

Mr Trichet struck a hawkish tone after the central bank’s policy meeting – at which it left its main lending at 1 per cent – emphasising that the ECB was prepared to raise interest rates to keep prices stable. “Risks to the medium-term outlook for price developments are still broadly balanced, but could move to the upside,” he said. Read more

European stress tests will be held in the first half of this year and published in the summer, the European Banking Association* has announced. They will be accompanied by a review of liquidity funding risks:

The EBA will, as part of its regular cycle of risk assessments, initiate a separate thematic review of liquidity funding risks across the EU banking sector in the first quarter of 2011. The EBA will use this internal review to inform supervisory authorities about areas of vulnerability in relation to liquidity risk.

It looks as though the liquidity assessment will remain private, though the stress tests will be published. We’ve asked the EBA for confirmation and will update you.

No mention of the sovereign holdings part being scrapped; perhaps, in light of current shenanigans in Europe, the EBA felt they might be needed. Read more

The base rate remains at 0.5 per cent, and the stock of asset purchases remains at £200bn. Is high and rising inflation in the UK beginning to pressure the Bank? Please read Chris Giles’ global insight in today’s FT for more.

Money Supply - Click for interactive interest rate graphicCentral bankers in Seoul have raised the base rate by 25bp, taking it to 2.75 per cent. While the move was unexpected, it is not surprising. The Bank of Korea has taken numerous measures to combat inflation in recent weeks, even doubling the availability of staple food sources to help contain food price inflation. In December, the country announced plans for a bank levy on foreign-currency debt; the bill, yet to be finalised, could become law in the second half of this year.

In a statement issued with the decision, the Bank’s tone was generally upbeat, but concerns persist around asset prices: Read more

The Bank of England has rarely felt as much heat in the form of public criticism as it has in the first few days of 2011. UK inflation is rising towards 4 per cent, double the Bank’s target, and households are feeling squeezed.

Vocal critics describe the Bank’s control of inflation as “a joke”, aping the US rightwing populist movement against the Federal Reserve. Almost half the economists surveyed in a big new year study thought forecasts of moderating inflation had lost credibility. And David Cameron, prime minister, has fretted over “concerning” levels of inflationRead more