Robin Harding

Data from the Treasury International Capital system have always got a lot of stick. The system is meant to show foreign holdings of US assets broken down by country (and vice versa) but has a big problem with ‘custodial bias’: it struggles to track funds beyond the financial centre where they are held, e.g. the UK, Switzerland, the Channel Islands, various dodgy Caribbean destinations etc.

Recent sanctions on Libya have created a fascinating natural experiment on just how big that ‘custodial bias’ actually is. Does the amount of Libyan assets in the US reported to TIC match up with the amount of Libyan assets frozen in the US? Answer: a resounding ‘No’. Read more

Say what you will of the dizzying rise of South Africa’s rand, it has certainly helped to restrain inflation by keeping a lid on import prices. Consumer price inflation – which was over 10 per cent in late 2008 – has been running towards the bottom of the Reserve Bank’s target range, 3 to 6 per cent.

But data released this week suggest that inflationary pressures may be starting to build again – and that they could return with a vengeance when the currency weakens. At 6.2 per cent, November’s producer price inflation figure, released on Wednesday, surprised on the upside. So did the previous day’s consumer price inflation number of 3.6 per cent. Read more

Just two weeks after Zimbabwe’s finance minister revealed that employment costs were absorbing more than 60 per cent of total government revenue, the state-owned Reserve Bank of Zimbabwe has announced plans to cut at least 1,600 workers.

Giving evidence to the parliamentary portfolio committee on finance and the budget, Gideon Gono, central bank governor, said the retrenchment of three-quarters of the bank’s staff would be one of the largest to be carried out in the country by a single institution. Read more

A strengthening currency and lower-than-expected inflation have prompted the Reserve Bank of South Africa to cut its repo rate to 5.5 per cent, effective November 19. “The domestic growth outlook remains subdued and below-trend growth is expected to persist,” said the Bank.

Consumer price inflation fell to 3.2 per cent in September, lower than expected. Prices are forecast to rise at an average 4.3, 4.3 and 4.8 per cent for 2010, 2011 and 2012. The inflation target is 3 to 6 per cent. On capital flows, the Bank cited difficulties arising from the Fed’s stimulus programme: Read more

The Reserve Bank of South Africa is to stimulate its “somewhat fragile recovery”, after falling inflation gave the central bank room for manoeuvre. Read more

One of the big risks for the Chinese authorities in beginning to gently appreciate the currency is that they set up a one-way bet for investors who believe that the renminbi can only get stronger from now on. Large inflows of hot money could make it difficult to conduct monetary policy, officials fear, and might potentially aggravate inflation.

That explains why there has been much more talk since Saturday about volatility in renminbi trading and using a currency basket as a reference. When China abandoned its currency peg in 2005, it said the renminbi would trade against a currency basket of its main trading partners, but in reality it trailed the US dollar and was much less volatile than the 0.5 per cent daily trading bands allowed.

“In one area, the emphasis will be different this time,” says Li Daokui, a central bank advisor who believes the authorities will pay more attention now to the basket in which the euro plays a large role. Economists who have been briefed by the central bank say that there will also be more daily volatility, in order to keep speculators on their toes.

This means that in principle, says Mr Li, that if the euro gets much weaker, the renminbi could fall against the dollar. Richard Yetsenga at HSBC says something similar: Read more

Simone Baribeau

Since global central banks widely expanded their roles in the financial crisis, their leaders have been warning about the dangers of attacks on their autonomy. Earlier this week, Ben Bernanke, US Federal Reserve chairman, said that undue interference can “impair inflation-fighting credibility” and “worsen the economy’s longer-term prospects”.

And over the past few months central bank leaders warned of attacks in Argentina (where the central bank chief was fired after refusing to transfer foreign exchange reserves to the government), South Korea (where a vice minister attended a monetary policy meeting), Japan (where the central bank faced pressure to increase lending) and Mexico (where some viewed the appointment process of the new Bank of Mexico governor as politicised). Read more

Simone Baribeau

Reuters has an interesting interview with the Nigerian central bank chief warning that the government should not count on oil prices of more than $60 per barrel. His comments come as the country’s legislature is currently considering cutting its estimated price of oil from $67 to $55 – which would slash some 15 per cent from the country’s budget, even before cutting estimates for output. Worth a read.

Nigerian central bank chief Lamido Sanusi added his weight on Wednesday to discussions on a review of the 2010 budget, questioning current assumptions both for the price of oil and on domestic output levels. Read more

You might soon be able to invest in roads, railways and power lines in Africa, if there is support for a suggestion from Kenya’s central bank. So-called infrastructure bonds have recently been put forward by the UK and US, but cross-border bonds are rare. Quite how they would be priced is unclear.

From Reuters: Read more

Alan Beattie

It’s often the fate of the World Bank to be overshadowed at the spring meetings, since its sibling, the IMF, is generally in the thick of a faster-moving story (Greece, currencies, bank taxes, etc).

But in a weekend when the IMF basically avoided discussing all the big questions, the bank actually made some real concrete progress: it secured the $5.1bn capital increase that its president Robert Zoellick has been seeking for the best part of a year. So, like the IMF with its tripled firepower, the bank is having a shot at keeping up with the growth in the global economy. Read more

Nigeria is a step closer to setting up an Asset Management Company, after ten banks were rescued last year with bad debts of about $6.7bn. The Senate will now produce a version of the bill, before the two houses form a common document. The ten banks will have to pay back their loans through the new company. The bill’s passage has been swift: the proposal only became official in January.

Imagine walking down the high street, cash in hand, to place your savings into your local deposit bank. Now imagine going to a different bank to check on your loan balance. And a third bank to find out about insurance. Each bank only offers a specific service: they are local and they do not compete with each other.

Such a set-up would redefine the concept ‘bank’. Read more

Nigeria’s central bank has kept its benchmark interest rate at 6 per cent, but cut its deposit rate from 2 to 1 per cent, reports Reuters. The press release will be available here. Sub-Saharan Africa’s biggest energy producer wants to stimulate lending: “We will reduce the level of interest the banks earn with us to encourage them to seek other areas, which means lending,” central bank governor Lamido Sanusi is quoted as saying.

Neighbours Namibia and Botswana have kept their main rates on hold today. Namibia has kept its repurchase rate at 7 per cent for the fourth consecutive month, while Botswana has kept its main lending rate at 10 per cent. Namibia and Botswana neighbour South Africa, the continent’s largest economy, and Namibia generally follows South African monetary policy. South Africa kept its rate at 7 per cent for the fourth month, on January 26.

Inflation in all three countries is at similar levels, albeit in different directions. South African inflation ran at 6.2 per cent in January, above the 3-6 per cent range for the second month, but falling toward it from December’s level of 6.3 per cent. Inflation in Namibia – also above target but slowing – is currently about 6.3 per cent. Botswana has just exceeded its target range of 3-6 per cent, with inflation rising to 6.1 per cent in January. Read more

The Bank of Ghana has cut the main policy rate from 18 to 16 per cent, hoping banks will reduce their rates too, helping to restore credit growth to the economy.

The bank is keen to push falling inflation down further. Annual inflation stood at 18 per cent in October, falling each month to 16.9, 15.9 and 14.8 per cent in January. The target range is 7.5 – 11.5 per cent. Read more

South Africa’s finance minister has announced a significant shift in central bank policy in a radio interview. His comments will raise more questions about the bank’s independence.

The South African Reserve Bank will adopt a flexible approach to inflation. The bank will be allowed ‘temporary deviations’ from its target of 3 – 6 per cent in the pursuit of growth, reports Business Week.”[Inflation will not be] the sole focus of what the bank does,” said Finance Minister Pravin Gordhan. “We’re very mindful of growth.” Read more

Libya’s central bank plans to issue two licences for foreign banks to set up units in the country. Foreign banks will have full management control of the new lenders and a 49 per cent stake, the Tripoli-based central bank told Bloomberg today. The remaining 51 per cent will be held by domestic investors. The banks, which must have international presence and a healthy credit rating, must express their interest by March 30.

Imagine Ben Bernanke facing exile to Mexico for standing firm against the banks.

That is what faces Nigeria’s central banker, Lamido Sanusi: “I was not under any illusion of the power of the people I was going to fight,” he says. “I’m ready to go on exile, but we can delay the day. We must continue to fight in order protect the depositors.” Read more

The Ghanaian central bank has all but declared war on the high interest rates charged by banks to consumers, and is threatening measures such as interest rate caps to bring them down.

Although the central bank’s base rate is 18 per cent – down 50bp in November – the country’s banks are charging average rates of about 30 per cent. The central bank has criticised the stickiness of the interest rates – banks are quick to raise them but slow to let them fall.

Nigeria’s central bank is honing plans to categorise banks by region or speciality. The idea, discussed in January, would reject the current banking model in which all banks are all things to all people. Read more