By Philip Stephens

You may think the big commercial banks got away with it after the great financial crash. But what about the Bank of England? Britain’s central bank was asleep at the wheel when the storm hit in 2007. Mark Carney’s radical shake-up of personnel and responsibilities in Threadneedle Street is an uncomfortable reminder that failure is sometimes richly rewarded.

The blame does not lie with the present governor. Mr Carney was drafted in from Canada last year to replace the departing Mervyn King. The cutbacks in banking supervision that preceded the crash came on the now Lord King’s watch. A reorganisation that leaves Mr Carney with a total of five deputies, however, is a reminder of just how much additional power has accrued to the Bank during the past few years. When the BoE was first granted independence during the late 1990s, the then governor happily settled for two deputies. Read more

By James Politi in Washington

In his final press conference before heading to Martha’s Vineyard, an island off the coast of Massachusetts, for summer holidays, president Barack Obama was asked about his looming pick to succeed Ben Bernanke as Federal Reserve chairman.

We’ll try to parse his words, like a Fed statement.

On timing – Mr Obama repeated that he would make the decision in the autumn, which technically begins September 22. But some speculate that a choice could come sooner. Mr Obama might take the time over the holiday to ruminate and, perhaps inspired by the Atlantic ocean breeze, even make up his mind one way or the other.

On names – Mr Obama confirmed that Janet Yellen, the vice-chair, and Larry Summers, the former Treasury secretary and a top White House economic adviser in 2009 and 2010, are the leading candidates, mentioning them by name and calling them “terrific people”. Interestingly, he left out Don Kohn, a former Fed vice-chair who he had mentioned as a possibility in meetings with congressional Democrats last week. But he did say there were a “couple of other candidates” too. Read more

What’s on the mind of billionaire Oleg Deripaska, the controlling shareholder in Rusal, the world’s biggest aluminium company? At a meeting with journalists on Friday, he talked about the outlook for the alumnium industry (cautious), the planned toughening of Russia’s enviromental rules (a game-changer), his dispute with business partner Viktor Vekselberg (almost no comment) and the long-running row at Norilsk Nickel (hostilities suspended).

But what excited Deripaska most were Russian lending rates. At 9 per cent a year and more, they are far too high, he says. And the answer is: a change in the “ridiculous” management team at the central bank.

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Emma Saunders leaves the FT on Friday to return to banking.

We thank her for her contributions and wish her all the best in her new role.

The Singapore dollar jumped to a record level against the US dollar on Thursday after the island state tightened monetary policy for the second time in six months to combat rising inflation. Economists said the move was likely to be followed by a round of interest rate rises across Asia as governments sought to curb inflation generated by rapid economic growth in the region and loose monetary policy in the west.

Singapore, which conducts its monetary policy through changes to the exchange rate, rather than through interest rates, said it was responding to faster than expected economic growth and a fall in commercial interest rates triggered by abundant global liquidity. The Monetary Authority of Singapore, the country’s central bank, said it had shifted its exchange rate policy band upwards to below the prevailing level of the Singapore dollar’s nominal effective exchange rate. Read more

Greece needs time to convince international investors about its reform programme and may not be able to return to financial markets next year as planned, its finance minister has admitted.

George Papaconstantinou’s comments in a Financial Times interview highlight how Greece continues to struggle to turn its economy round almost a year after the launch of an €110bn European Union and International Monetary Fund bail-out. They may fuel speculation that European leaders will have to find fresh ways of alleviating Greece’s debt problems to avert a default scenario. Read more

The US lacks a “credible strategy” to stabilise its mounting public debt, posing a small but significant risk of a new global economic crisis, says the International Monetary Fund.

In an unusually stern rebuke to its largest shareholder, the IMF said the US was the only advanced economy to be increasing its underlying budget deficit in 2011, at a time when its economy was growing fast enough to reduce borrowing. The latest warning on the deficit was delivered as Barack Obama, the US president, is becoming increasingly engaged in the debate over ways to curb America’s mounting debt.  Read more

Turkey’s banking industry could be damaged unless the central bank reverses last year’s decision to stop paying interest on required reserves, the head of one of the country’s biggest lenders claims.

Suzan Sabanci, chairman of Akbank, told the Financial Times that new rules requiring banks to lodge 15 per cent of short-term lira deposits with the central bank risked fundamentally weakening banks unless they received interest in compensation. “The government is trying to be cautious that the economy doesn’t grow too fast. And I agree with that,” she said. “But we need to be recompensed. They should start paying interest in six months’ time.” Read more

A senior Portuguese banker has said that the European Central Bank pressed the country’s lenders to stop increasing their use of its liquidity – setting in train events that led Lisbon to ask for a bail-out this week.

António de Sousa, head of the Portuguese Banking Association, said that the message from the ECB and Portugal’s central bank not to expand their exposure to ECB funding further came a month ago. Read more

The ECB decision to raise its policy rate by 0.25 per cent to 1.25 per cent is a seminal moment for the global economy. Not only is this the first of the leading central banks to raise rates, it is the first time for decades that Europe has initiated a rate rising cycle ahead of its counterparts at the Fed. I believe that it is wrong to view this as an isolated occurrence: economic fundamentals are far more supportive of rate rises in the eurozone than they are in the US, and that will remain the case for some time to come. And the ECB is deliberately sending a very strong message to member states that they have not gone far enough to fix the sovereign debt problem. Although the markets have already to some extent anticipated the front-loading of ECB rates, relative to those set by the Fed, they may not yet have moved far enough in that direction.

The main reason for today’s rate rise is of course entirely obvious. Eurozone inflation has persistently come in higher than expected in recent months, and the headline CPI rate reached 2.6 per cent in March, mainly because of higher oil prices. Since the ECB tends to be more influenced by the headline inflation rate, while the Fed places more emphasis on the (much lower) core rate, it was always likely that the two central banks would react in different ways to a commodity price shock.

However, this is not the only reason for the ECB’s greater hawkishness. The Fed (rightly in my view) is convinced that there is still plenty of spare capacity left in the US economy, because the unemployment rate remains far above the equilibrium or structural rate of unemployment. By contrast, the ECB is less confident about the margin of spare capacity in the European economy.

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Irish central bank governor Patrick Honohan writes:

The focus should be increasingly on measures that can help unblock growth. One dimension which, in my personal view, has not yet received the attention it deserves is the potential for mutually beneficial risk-sharing mechanisms. A variety of financial engineering options could be considered going beyond the plain vanilla bonds currently employed. Read more

The International Monetary Fund has proposed its first ever guidelines for using controls on flows of speculative capital, legitimising a controversial tool that it once campaigned against.

The guidelines – which are not yet official Fund policy – say that countries can control capital inflows when their currency is not undervalued, when they already have enough foreign exchange reserves, and when they are unable to use monetary or fiscal policy instead. Read more

Increasingly hawkish statements from Poland’s interest rate-setting Monetary Policy Council have analysts convinced that Poland is in for another rate hike on Tuesday as the central bank resumes its tightening policy.

The expectation is that the council will increase its policy rate by a quarter point to 4 per cent a year – with analysts at Danske Bank predicting that rates will continue their upward climb, hitting 5 per cent within 12 months.

Inflation expectations are on the rise. According to Citi Handlowy bank, they reached 3.9 per cent a year in March. The central bank has also expressed concern about the lacklustre performance of the zloty, which has been sagging on worries over Poland’s budget and the government’s unenthusiastic fiscal tightening programme.

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Many investors fear that the Fed’s impending exit from QE2 will have a very damaging effect on the financial markets. Whether they are right will depend on the nature of the exit, and its impact on bond yields. An end to the Fed’s programme of bond purchases, without any increase in short rates, is unlikely to be sufficient, on its own, to trigger a major bear market in bonds and equities. But an end to the Fed’s “extended period” language on interest rates would be a much greater threat. I still do not expect this to happen soon.

Recently, the Fed has purchased 60-70 per cent of all the bonds which have been issued to finance the US budget deficit. Some influential analysts (Bill Gross of Pimco among them) argue that bond yields will rise sharply when the Fed withdraws its life support from the bond market. But there are some powerful advocates, including the Fed chairman himself, for an entirely contrary point of view. Ben Bernanke told Congress in February that he did  not expect to see “a big impact” on bond yields when the Fed ended its asset purchases.

The Fed has hardened its thinking on this question in the past couple of years. It has  decided that QE reduces bond yields via its effect on the total stock of outstanding bonds, and not via its impact on the flow of bonds purchased in any given period. If this is the case, then

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The Group of Seven industrialised nations have agreed to co-ordinated currency intervention for the first time in a decade to help Japan recover from its devastating earthquake, tsunami and nuclear crisis.

Authorities in Japan, the eurozone, the UK, Canada and the US agreed on Friday to help weaken the yen in a rolling intervention that began at 9am in Tokyo, which immediately pushed the yen down from above Y79 against the US dollar to below Y81. Read more

Import prices in February climbed much faster than expected, as did producer prices, and the Federal Reserve adjusted the language in its latest FOMC statement to reflect the “upward pressure” on inflation from higher commodities prices.

But today’s CPI release showed that inflation in February was only slightly higher than consensus, so there probably won’t be any market surprises based on this — not with the extraordinary events happening elsewhere in the world. The headline number was up 0.5 per cent last month, and core grew by 0.2 per cent.

Still, the year-over-year gap between headline and core inflation continues to widen impressively. These are still low levels for both, but it’s worth mentioning that February was also the second straight month in which core inflation grew at 0.2 per cent — after not having exceeded 0.1 per cent since last June.

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Turkey’s central bank stepped in again this week to clear confusion over the effects of its unorthodox monetary policy, after the release of data that appeared to contradict comments made by officials. The trouble was caused by balance of payments data: it showed portfolio inflows of $2.3bn in January, higher than a year earlier and at odds with official claims that some $10bn of “hot money” had left the country since December, when the central bank began “quantitative tightening” to deal with macroeconomic imbalances.

Two clarifications from the central bank have cleared up the discrepancy. The balance of payments data showed foreign investors had sold out of Turkish equities since November, while increasing their exposure to debt instruments. But the figures did not include money market transactions, mainly in the form of swap operations. Here, the central bank said, there had indeed been an outflow of $11.5bn since November. Read more

Smartphones and the applications that run on them have been added to the basket that makes up the consumer price index, along with fees paid to dating agencies.

The Office for National Statistics on Tuesday unveiled changes to the composition of its CPI and retail price index baskets, intended to represent a “typical” shopping basket for households – an exercise it undertakes every year. Because shopping habits change, items are constantly being added and removed from both indices. Read more

The behaviour of the world’s two main central banks, and the relationship between them, have profound effects on global financial markets. As a broad rule of thumb, the ECB (and the Bundesbank before it) have tended to act in a very similar manner to the Fed, except about 6-12 months later. In fact, that is one of the most well established rules in the analysis of monetary policy making.

It does not imply that the ECB deliberately “copies” the Fed, which it clearly does not do. But it does imply that circumstances have usually produced this symbiotic relationship between the two key central banks. When this relationship has been broken in the past, it has usually spelled trouble.

The “normal” relationship between European and US monetary policy is clearly depicted in the first graph. It is obvious that where the US leads, Europe generally follows. Since the inception of the euro, the statistically optimal lag between the monetary policy rates set by the Fed and the ECB is about 10 months, with the Fed in the lead, and the correlation between the two series using that lag is about 0.85.

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The whereabouts of the governor of Libya’s central bank, the man who holds the key to the Gaddafi regime’s finances, have confounded officials, diplomats and bankers who have been desperate to find him over the past two weeks.

Farhat Omar Bengdara has spent much of the time since the outbreak of the uprising against Muammer Gaddafi outside Libya but it is has been unclear whether he supported the regime or was co-operating with the oppositionRead more