Janet Yellen prefaces her speech today by saying that “it is not my intention to provide new information about the outlook for the US economy or monetary policy” but it is extremely tempting to read two scenarios that she sets out (as illustrations of the effects of Fed communications) as primary policy options for the next couple of years.
Scenario 1 – Delayed tightening
“If financial market participants appeared to be expecting policy firming to begin somewhat sooner than policymakers considered desirable or appropriate under such circumstances, the language of the forward guidance could be adjusted to shift expectations toward the somewhat longer horizon over which the Committee expected the federal funds rate to remain extraordinarily low.”
Shock news in the Bundesbank’s latest monthly bulletin: German house prices have gone up. The more-or-less flat profile of residential property prices over the past decade has been one of the defining features of Europe’s largest economy over the past year. It meant the country escaped a house price bubble, the downside of which is now being seen in the US, UK and, within the eurozone, in Spain and Portugal. (Instead German investors piled into US subprime mortgages – but that’s another story.)
Fighting currency appreciation is an expensive business. It cost the Swiss SFr 21bn ($23bn) before they gave up and let the franc rise. New figures out from the Bank of Israel show it cost them NIS 17.6bn ($4.8bn). The Bank’s overall loss was NIS 17.9, of which 98 per cent can be attributed to exchange rate moves.
Israel’s foreign exchange stockpile has been growing – but the governor says these reserves might prove useful if there is a reversal of capital flows. Israel has been raising rates to contain inflation and dampen the too-buoyant housing market. The governor has called for international rules on foreign exchange markets and capital flows, just as exist currently for trade.
Luc Coene, Flemish-speaking vice governor of the National Bank of Belgium, will be promoted to governor when French-speaking Guy Quaden steps down on March 31. His five-year term will begin April 1.
The move was widely expected. Mr Coene had been due the promotion last August when Mr Quaden was meant to retire, but Belgium’s inability to form a government meant no final decision was taken at that time.
High inflation has prompted the first rate rise in Russia since the financial crisis. All rates are affected by the quarter-point rise, including the deposit rate and the benchmark refinancing rate. This has surprised analysts. A Reuters poll, for example, predicted a 25bp rise in the deposit rate, with about half of respondents expecting a simultaneous rise in reserve requirements. The majority had expected the refinancing rate to be left on hold.
The rate rise, which will take the refi rate to 8 per cent, is effective February 28. Reserve requirements – raised at the end of last month – will be increased by the same amounts as last time: i.e. 1 percentage point for corporates, and 50bp for individuals and other. That move will be effective March 1. Use the dropdown below to explore historical reserve requirements (note: the most recent changes are entered by announcement date rather than effective date).