Monthly Archives: July 2011

Claire Jones

Coverage of Bank of Japan governor Masaaki Shirakawa’s speech earlier today focused on his warning on the dangers of a strong yen.

This is odd, as currency intervention is likely to come at the behest not of the Bank of Japan but of the finance ministry. Besides, as Mr Shirakawa notes elsewhere in the speech, Japanese manufacturers are hedged against a rising yen owing to their recent spate of acquisitions of overseas firms.

Of more interest is his warning that the impasse over the US debt ceiling and the eurozone debt crisis could trigger a rise in government bond yields the world over. 

Claire Jones

Events in the eurozone and the US are at the forefront of central bankers’ thoughts, in some cases eclipsing domestic factors in setting policy rates.

So it proved in South Africa today, as the central bank opted to hold rates at a 30-year low of 5.5 per cent, as expected.

The South African Reserve Bank appeared unconcerned about striking fuel workers’ calls for a 13 per cent pay rise, or the recent spike in inflation to 5 per cent from 4.6 per cent in May, arguing that expectations remained well anchored within its 3-6 per cent target range. Instead, its policy statement focused on the global outlook. 

Robin Harding

I did a piece for today’s paper on what would happen if the debt ceiling was not raised on time. Here are a few extra points arising from the reporting for that piece:

(1) The Treasury becomes constrained by the debt ceiling at the point when its account with the Federal Reserve is forecast to be overdrawn at the end of the day. The August 2nd date cited by the Treasury is the last day that it expects to undertake normal operations and end below the limit. So the constraint would most likely bite, and the chaos start, on the 3rd

Claire Jones

This from the FT’s Joe Leahy and Samantha Pearson in São Paulo:

Brazil’s central bank has raised interest rates for the fifth time this year as the country battles inflation above official target levels. 

Claire Jones

The European Union today became the first jurisdiction to unveil proposals on how it intends to beef up its banks’ capital and liquidity buffers.

In terms of capital, the measures put European banks in line with Basel III in requiring them to hold common equity tier 1 capital of 4.5 per cent and total tier 1 capital of 6 per cent, up from 2 per cent and 4 per cent under the current regulatory regime.

That means the continent’s banks must raise a whopping €460bn in capital by 2019. Either that or shrink their balance sheets and shed risky assets.

But hold the applause. According to the IMF, this might not be enough.   

The Bank of England’s latest minutes, out today, were more dovish than the previous month’s. So why did the pound climb against the dollar following their release? In all likelihood, as FT Alphaville’s Neil Hume writes, this was because the minutes failed to mention any additional support for QE2, reversing expectations among some investors that a second round of asset purchases was imminent.

The post is below.

 

Claire Jones

ECB president Jean-Claude Trichet may be unwilling to cede to Angela Merkel’s calls to overrule ratings’ agencies judgement on a Greek default – selective or otherwise. However, Mr Trichet’s position on the big three’s dominance of the industry is in line with that of the eurozone’s political masters.

At both this month’s press conference and in an interview published Tuesday, Mr Trichet made it clear he agreed with German finance minister Wolfgang Schäuble’s point that the oligopolistic structure of the industry was far from ideal.

When asked whether he would favour the creation of a European rating agency – something which Ms Merkel has backed since before Lehman Brothers’ collapse – Mr Trichet was more oblique. 

Claire Jones

Nobody is quite sure yet what does and doesn’t count as macroprudential policy. But, given it’s seen as a force for good, central bankers are keen to pin the tag on as much of what they do as possible. Once the hype fades, though, it is unlikely to displace interest rates as their most important tool.

A key, perhaps even the question for policymakers, then, is how monetary policy and macroprudential policy can best interact.

According to research from Standard Chartered’s Natalia Lechmanova, which looks at the lessons that can be learnt from how Asian policymakers have used macroprudential tools such as loan-to-value ratios, the two policy strands are most effective when they are combined. 

Claire Jones

It is oft remarked that when the US sneezes, the rest of the world catches a cold. Given the slew of poor data in recent months, then, the risk of a double dip in the world’s largest economy is of mounting concern to policymakers around the globe.

Central bankers from Sweden and Japan have both touched on the issue in recent weeks.

This from the Bank of Japan’s minutes for its mid-June policy meeting, released Friday: 

Claire Jones

Minutes of the Riksbank’s July 4 policy meeting, published today, see deputy governor Lars Nyberg become the latest central banker to lambast the eurozone authorities over their handling of the Greek crisis. From the minutes:

Economically it would have paid off to find a solution to the Greek crisis a long time ago, given the costs in the form of less efficient markets and falling stock markets that the uncertainty has led to. However, Greece is now part of the euro area and this means that the crisis must be resolved politically and at the European level. Mr Nyberg noted that the European mechanisms for resolving crises do not appear to work particularly well.

Financial market investors are wondering, and justifiably so, how a crisis in a larger country could possibly be managed if it is not even possible to reach agreement on how to deal with Greece.

Quite. Because of this, he says, “a relatively minor economic crisis may quickly become a major political crisis”. (Note that this was before events in Italy took a turn for the worse.)