Monthly Archives: November 2011

Claire Jones

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FOMC minutes

The Federal Open Market Committee on Tuesday releases the minutes of its policy meeting held earlier this month. The minutes are out at 14.00 local time (19.00 GMT).

This from the FT’s US economics editor Robin Harding on what they’ll cover: Read more

Claire Jones

Walter Bagehot. Image by Getty.

Walter Bagehot. Image by Getty.

Walter Bagehot would be turning in his grave.

A  research note published by the Bank of Canada on Thursday has dared to challenge the 19th Century economist’s rule that monetary authorities should lend only at a penalty rate against good collateral in times of a liquidity squeeze.

Instead, the Bank of Canada suggests that it would perhaps be wiser for the rate charged to be cut, by lowering the haircuts set on collateral exchanged for central bank cash on signs of liquidity shortages. Read more

Claire Jones

The dip in the price of gold in early autumn failed to do much to dampen demand from the central banks. In fact, their buying rocketed. This from the FT’s Jack Farchy:

Central banks made their largest purchases of gold in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.

The scale of the buying, at 148.4 tonnes on a net basis, was far bigger than previously disclosed, surprising some traders.


The report by the World Gold Council, industry lobbyists, on which the story is based confirms a few of Money Supply’s earlier suspicions about why central bank demand would to remain strong, or even rise, on the back of the dip in price. Read more

Ralph Atkins

German politicians and the Bundesbank have not softened their opposition to the European Central Bank taking a decisive role in the eurozone debt crisis. But one demand has been quietly dropped. A Europe policy programme agreed by Chancellor Angela Merkel’s Christian Democratic Union at a Leipzig party conference this week made no mention of boosting the Bundesbank’s influence at the ECB.

The proposal to give Jens Weidmann, Bundesbank president, votes in proportion to the size of the Geman economy had been touted by the country’s conservatives, who saw him being outmaneuvered by the ECB governing council’s 22 other members – especially over the its controversial bond purchasing programme. Read more

Robin Harding

An important part of the Fed’s outlook when it made its forecast of low interest rates through to mid-2013 in August, and launched Operation Twist in September, was that it expected inflation to fall back as the temporary effects of an oil shock and the tsunami disaster in Japan faded away.

But the FOMC’s November projections show a wide dispersion of views on whether that will actually happen. The central tendency for headline inflation in 2012 is from 1.4-2 per cent and the central tendency for core is from 1.5-2 per cent. Three FOMC members must be higher and three members must be lower than even that range. Read more

Claire Jones

No longer content with  setting the world’s capital and liquidity standards, the Basel Committee now wants to take on the mantle of global regulatory policeman.

This from the FT’s chief regulation correspondent Brooke Masters:

Teams of global regulators will fan out across the world from next year to ensure that new tougher capital and liquidity standards are enforced correctly, the chairman of the Basel Committee on Banking Supervision said on Wednesday.

Stefan Ingves, the chairman, notes that this new role “represents a significant practical and cultural shift” for a committee that has in the past relied more on persuasion than policing.

However, the very fact that the chairman believes Basel cops are needed to ensure Basel III is properly enforced highlights a similarly significant shift in attitudes towards its regulations over recent years. Read more

Claire Jones

The governor of the Bank of England has often been critical of eurozone leaders, frequently condemning their failure to accept that the region’s sovereign debt crisis is one of solvency, not liquidity.

But, at the Bank’s Inflation Report presser on Wednesday, Sir Mervyn was a little more supportive of the region’s central bank.

Forget calling for the ECB to become lender of last resort for the more troubled of the eurozone’s governments, he said. It was simply not the responsibility of it, or any other central bank, to take on such a role. Read more

The Bank of England has downgraded its view of the sustainable level of UK output at almost every inflation report since November 2007.

Today, the Bank’s latest forecast expects the output lost in the recession since the start of 2008 will be recovered only in the third quarter of 2013. If true, that means when Sir Mervyn King leaves office in June 2013, output will still not have recovered from the recession. The governor’s second term will be one of no growth at all. Read more

Claire Jones

The IMF and the World Bank will regard the publication of its report on the first Financial Sector Assessment Programme, or FSAP, for China on Tuesday as something of a triumph.

Pre-crisis, China (along with the US) refused to undergo the programme, which serves as a health check on a country’s financial network.  Now, they are compulsory for those financial networks deemed systemically important.

People's Bank of China. Image by Getty.

People's Bank of China. Image by Getty.

That’s to be applauded; the more that is done to warn of risks to financial stability, the better. But the People’s Bank of China’s response to the exercise highlights its limits. Read more

Claire Jones

With UK inflation slowing to 5 per cent in October, most believe price pressures are now past their peak.

But few agree on how fast inflation will fall towards the Bank’s 2 per cent target.  Read more

Robin Harding

William Cline and John Williamson of the Peterson Institute have updated their estimates of ‘fundamental equilibrium exchange rates’: an exceptionally valuable cheat sheet for working out which currencies are over and under valued. (In fact they have not updated the FEERs, just their estimates of over and under valuation). Read more

Ralph Atkins

When  the history of the eurozone crisis is written, will July be seen as the moment when politicians really got it wrong? That would probably be the conclusion if the European Central Bank was writing the book. At a eurozone summit in July, Berlin secured agreement on a “private sector involvement”  in Greece’s bail-out – despite warnings from the ECB that it would send a terrible signal to investors elsewhere in the eurozone.

Jens Weidmann, Bundesbank president, was surprisingly blunt about the impact in his interview with the Financial Times. Read more

Claire Jones

Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit  Read more

In recent days, a chorus of investors has argued that only one institution, the ECB, now has the firepower needed to solve the eurozone’s debt crisis. That firepower consists of newly printed money, which is viewed as being almost limitless in scale.

If the ECB uses this resource to purchase Italian and Spanish sovereign debt, advocates claim there is no amount of market speculation which could overcome the resources of the central bank. That, after all, is what the Swiss National Bank has shown by threatening to intervene without limit to prevent the Swiss franc from appreciating. Why cannot the ECB use the same silver bullet to place a ceiling on Italian bond yields?

 Read more

Claire Jones

Nicolas Sarkozy will be pleased. Lorenzo Bini Smaghi is to quit the ECB for Harvard at the end of this year.

Below is the ECB’s statement: Read more

Claire Jones

When the European Central Bank said in August that it would buy Italian and Spanish government debt, some feared that the central bank would struggle to “sterilise” the purchases.

The ECB does not want its purchases to boost inflation, so each week it takes an amount of money from the system, roughly equivalent to the value of the bonds it has bought, a technique known as sterilisation. It encourages banks to deposit money with them by offering to pay a competitive rate of interest.

Any signs that such a struggle was on the cards, and we would have seen a rise in this rate of interest.   In fact the opposite has happened; it has dropped.

That should allay any concerns that the ECB will struggle to remove the cash.

But – with Mark Carney, the governor of the Bank of Canada, warning of a “severe retreat” in global liquidity – should the ECB be sterilising its purchases in the first place?  Read more

Claire Jones

The Monetary Policy Committee held bank rate at 0.5 per cent and the size of the asset purchase programme at £275bn, as expected.

The Bank of England holds its inflation report press conference next Wednesday, when the governor will present its latest forecasts for growth and inflation.

Claire Jones

The reputation of inflation targeting, which before the crisis was one of central banking’s sacred cows, has taken a bruising in recent years.

But Canada’s renewal this week of its 2 per cent target for the next five years would suggest that all was well – or at least broadly ok – with the framework.

Not so fast. Comments by Mark Carney, the governor of the Bank of Canada, highlight that if inflation targeting is to survive, then it will have to adapt.

But that could mean sacrificing some of its benefits. Read more

Robin Harding

Charles Plosser of the Philadelphia Fed gave a noteworthy speech today on how the US central bank might improve its communication policies.

Mr Plosser has always been interesting on this subject — he is a long time advocate for a defined Fed inflation objective — but he is especially worth paying attention to now as a member of the Fed subcommittee that is looking at communications.

Mr Plosser is the obvious ‘hawk’ on that committee — the other members are vice chair Janet Yellen, governor Sarah Bloom Raskin, and Chicago Fed president Charles Evans — and its clear that there is a lot of common ground on inflation objectives and on providing more information about the forward path of policy. Read more

Claire Jones

The Treasury select committee’s review of Bank of England governance is out today. Here are some initial thoughts on some of its recommendations.

Recommendation: The Court of the Bank of England should be transformed into a smaller, more expert Supervisory Board with its own staff. It should decide on the allocation of resources among the Bank’s different areas of work and its minutes should be published. The Supervisory Board should have the power to conduct and publish retrospective reviews of Bank policies and conduct, the report concludes.

If the evidence sessions have highlighted one thing, it is that the court is ill equipped to perform the duties expected from a board of directors of a central bank. Read more