Daily Archives: March 29, 2011

Robin Harding

The Fed will release the details of its discount window lending from 2007 to 2010 this Thursday 31st after losing its Supreme Court appeal against a Freedom of Information lawsuit from Bloomberg.

Things are likely to be a little different to last November’s data dump on the Fed’s other crisis liquidity programmes as a result of the Dodd-Frank Act. That required the Fed to release the data, which it did in the form of spreadsheets. To comply with the FOIA request, the Fed will have to release documents. Those are likely to need quite a lot of processing in order to extract the relevant information. Read more

“Absent significant shock, notably on the currency, the SNB should be in the position to start tightening the policy rate in the near term.” This from the IMF, as it raised its growth forecast for the Swiss economy to 2.4 per cent this year, after 2010 growth exceeded expectations. The Swiss National Bank has maintained a near zero rate since January 2009, officially targeting a three-month Swiss franc Libor rate of 0-0.75 per cent.

Mortgage lending standards should also be tackled with better regulation, says the IMF, arguing: “The development of lax lending standards in the mortgage market and increasing interest rate risk call for pre-emptive measures.” While a rate rise should work to reduce mortgage lending, its effects would be “limited”, so “concerns related to mortgage lending should be addressed by macro-prudential instruments.” Read more

Deja vu? No, ratings agency Standard and Poors has cut Portugal’s credit rating for the second time in less than a week, this time one notch to BBB-, leaving the rating with a negative outlook. Last week the agency cut by two notches – the most it could reasonably cut, given an explicit indication that they would be “unlikely” to cut by more. The agency left the rating on negative creditwatch, but that is usually interpreted to mean a further cut is likely in three months, not three days.

Greek ratings, meanwhile, have been cut deeper into junk territory with a two notch downgrade to BB-. The rating remains on negative creditwatch meaning a further cut is likely if there is no improvement; typically, that would be within three months, but in the current climate, who knows?

In both cases, the downgrades have been prompted by the structure of the permanent eurozone rescue fund, the ESM, which was confirmed at the end of last week by eurozone leaders. Two things in particular. One is the issue of subordination Read more

Ralph Atkins

German inflation data just released suggest the European Central Bank will not have shock horror headlines in tomorrow’s newspapers to support its case for hiking interest rates next week. The annual rate remained at 2.2 per cent in March on a harmonised European basis. That probably means the eurozone inflation figure - to be released on Thursday – also held steady at February’s 2.4 per cent or perhaps edged up to 2.5 per cent, according to most economists’ forecasts.

No doubt such data will encourage warnings, especially from economists in London and the US, that the ECB is taking a terrible risk and that with the eurozone debt crisis not yet resolved, a monetary policy tightening step is the last thing the region needs.

Of course, that is not how it is seen in Frankfurt. Read more

Israel has raised its key interest rate for April by half of one per cent – the largest rate rise since before the financial crisis. Bank of Israel was one of the first central banks to begin raising rates, starting in September 2009 with a quarter point rise from a record low of 0.5 per cent. Since then, there have been eight quarter-point rises, but this is the first half-point rise. In April, the Bank’s rate will be 3 per cent.

The move is an attempt to slow the economy and housing market, and rein in inflation. Israel’s economy is expanding, “converging towards a situation of full utilization of the factors of production”. The stats would send most Western central bankers green with envy. Last year, the economy grew by 4.6 per cent, rising to an annualised rate of 7.7 per cent in the last quarter. Unemployment is about 6.6 per cent and improving. But there is concern over inflation and housing. Consumer prices are rising 4.2 per cent annually, against a target of 1-3 per cent. Even stripping out house prices, inflation is 3.5 per cent annually. And there is evidence that inflation expectations and real wages are beginning to rise, too. Meanwhile the housing market continues to boom, with prices rising 16.3 per cent in the year to February and no decline evident in the appetite for new mortgages. Read more