Middle East

Stanley Fischer’s mantelpiece must be full. He’s just won another central banker award, this time Central Bank Governor of the Year from euromoney magazine, which has been running the award for 30 years.

Just yesterday, Sunday, he was awarded best Middle East central bank governor from magazine Emerging Markets. Last month, he was one of only seven central bankers to be awarded an ‘A’ grade by Global Finance magazineRead more

Rising inflation expectations, and ‘steeply’ increasing house prices have encouraged the Bank of Israel to raise its policy rate, continuing a programme of rate normalisation. October’s interest rate – not shown on the chart as we are still in September – will be 2 per cent.

Inflation expectations calculated from the capital market for one year ahead and those of the private forecasters remain in the area of the upper limit of the target inflation range, with the interest rate expected to rise to about 2.7 percent in a year’s time.

Low interest rates are also encouraging housing loans: Read more

Israel’s central bank will raise August’s key interest rate 25bp to 1.75 per cent. The raise, not yet shown on the chart which is accurate to today, will be the fifth 25bp increase since the bank started raising in 2009.

Rising inflation expectations are motivating the move: Read more

Turkey’s monetary policy committee is feeling vindicated. For months it has argued a spike in inflation was temporary: June’s inflation data, released this week, confirmed consumer prices had not just stabilised, but even fell 0.56 per cent last month.

The figures, showing annual inflation eased to 9.1 per cent from a peak of 10.2 per cent in April, boosted the Turkish lira and bonds. Combined with last week’s GDP data that suggested the economic recovery was losing momentum, they have also led most economists to defer expectations of higher interest rates to next year.

The volatility in inflation has been largely due to seasonal swings in food prices – a big component of the CPI basket in Turkey. But the central bank, in comments published on Wednesday, emphasized that core inflation had also eased, and a decline in services price inflation had become more pronounced – with rent inflation, one of the most persistent features of Turkish inflation, at a historic low.

This suggests that the central bank will use its next quarterly inflation report, due on July 27, to lower its forecast for year-end inflation from its previous call of 8.2 per cent. It is also likely to postpone the start of policy tightening, after signalling in its last quarterly report that rate rises could begin in the last quarter of 2010. Read more

The United Arab Emirates plans to raise $2.7bn within a year of offering Sharia-compliant certificates of deposit. The deposits will be available from the UAE central bank by the end of the year, if all goes to plan.  Business Week reports:

The U.A.E. is working to pass a law establishing a federal debt market by the end of the year, central bank Governor Sultan bin Nasser al-Suwaidi said in March. That will enable the central bank to issue Treasury bills, bonds and Islamic notes.

 Read more

By Farhan Bokhari

The resignation of Pakistan’s central bank governor, Syed Salim Raza, on Thursday was played down by a finance ministry official in Islamabad. “The stock market’s KSE-100 index rose by more than 1 per cent just today so obviously investors are unmoved” he said, referring to equity prices on the Karachi stock exchange, the main stock market. Read more

Simone Baribeau

Nope, I won’t be quoting bail-out critics. There was literally a theft.

Via Reuters Read more

By Delphine Strauss

Turkey’s central bank took the first step in its planned exit from monetary stimulus this week – but it still seems in no hurry to raise interest rates from historic lows. In a technical change it had signalled in a strategy announced last month, the central bank said on Tuesday its policy rate would now be the 7 per cent weekly repo rate, not the 6.5 per cent rate for overnight borrowing.

Durmus Yilmaz, Turkish central bank governor, told reporters on Thursday that banks could soon find financing more expensive. Reuters cites him saying: “From now on, our or the banks’ job will not be easy. We will have to make finer calculations. The banks may have to bring the money left in their hands at the end of the day to the Central Bank at a lower price.”

Yarkin Cebeci, analyst at JPMorgan, said the measure was unlikely to affect markets: “Because the CBRT had become a net lender to the markets, the [overnight] borrowing rate had already lost its relevance as the policy rate. Furthermore, the 1-week repo rate had already stabilized around 7.0 per cent in recent weeks.”

The real question is how soon the monetary policy committee will feel obliged to raise interest rates, with market expectations of inflation running well above the central bank’s medium term targets.

The statement issued by policymakers on Tuesday, when they held rates, suggests that the eurozone’s latest troubles have ended any likelihood of their acting sooner than the last quarter of 2010, as they have
already signalled. Read more

Central banks of the world, prepare to welcome a new addition to the family: the Gulf central bank.

Its leaders have just been announced by the new joint monetary council, in what will probably be seen as the inaugural meeting of the new joint central bank. Jurisdiction will cover Saudi Arabia, Qatar, Kuwait and Bahrain. Reuters reports the bank chairman as Saudi central bank chief, Dr Muhammad Al-Jasser. His deputy will be Bahrain’s central bank chief Mr Qassim Mohammed Fakhro.

With leaders chosen, meetings underway and an ultimate head office location of Riyadh (see map), what more is required? “There are certain legislative and financial measures that have not been completed” for the monetary union, Kuwait central bank governor Sheikh Salem Abdulaziz Al-Sabah told a news conference. Today’s meeting is expected to approve plans and a timeframe for the new institution. Read more

As part of normalisation of interest rates, the central bank of Israel has raised the benchmark interest rate to 1.5 per cent. The Bank stressed that even with the rise, monetary policy remains expansionary. Annual inflation, at 3.6 per cent, is currently above the target range of 1 – 3 per cent. The rise was:

Intended to return inflation to within the target range and to keep it there, and to contribute to the further recovery of economic activity, while supporting financial stability. The path of the interest rate will be determined in accordance with the inflation environment, the entrenchment of growth, in Israel and globally, the rate at which the major central banks increase their interest rates, and in light of developments in the exchange rates of the shekel.

 Read more

Stanley Fischer is to serve a second term as central bank governor of Israel, following the passage of a reform bill that he had declared a pre-requisite.

Zambian-born Professor Fischer was educated at the London School of Economics and MIT, among others. He was Ben Bernanke’s thesis advisor. Read more

Israel’s third-largest bank will stop taking shekel deposits from Palestine Islamic Bank and will reconsider relations with other Palestinian banks, for as yet unidentified reasons.

From Reuters: Read more

China is one of 32 central banks in a group that released a statement last week, saying there would be further restrictions on Iranian banks if no action is taken on nuclear proliferation and terrorist financing.

The Financial Action Task Force had been asked to identify ‘unco-operative’ jurisdictions by the G20. On Tuesday, the US Treasury reiterated its interest in sanctions against Iran’s central bank. Read more

Moody’s is ‘cautiously optimistic’ for the continued recovery of Middle East sovereigns (although this excludes the Dubai government, which is not rated by the ratings agency).

A sluggish global recovery will gain momentum and investor confidence will rebuild, predicts Moody’s Investors Service. So far this year, all Middle East ratings changes have been upward (Oman – Feb 18, Saudi Arabia – Feb 15). Moody’s points out that the region suffered a ‘relatively mild’ crisis. Read more

Perhaps Japan will take a note out of Israel’s book. There is an ongoing war of words between Japan’s finance ministry and its central bank, in which the government asks the bank to tackle deflation, and the bank asks the government to fix the fiscal deficit. As Robin has pointed out, the ‘pressure’ being applied to the bank is more of a nudge than an ultimatum. But if the government wanted to step up the pressure, it could use the minimum wage to affect monetary dynamics. This is a charge levelled today by Bank of Israel governor Stanley Fischer against the Israeli finance ministry, who told parliament the tactic has been used at least once (Israeli speech from Bloomberg).

Dubai World is unlikely to pay off developer Nakheel’s $980m Islamic bond, a source familiar with the matter told Reuters on Monday, and all options are open. The issue is due on May 13. “It is very unlikely that the bond will be paid off,” said the source. “Incredibly unlikely.” Dubai World is currently in talks to restructure about $22bn in debt and is due to present a proposal in March.

The Israeli central bank has chosen to keep its benchmark interest rate on hold at 1.25 per cent. The decision was widely expected, though some predicted a small cut in rates. Inflation in the country is falling faster than expected, with CPI down 0.7 per cent in January, versus expectations of 0.3 – 0.5 per cent. Israeli economic activity has risen, although fixed investment has dropped significantly. Internationally, “there remains the risk of another recession, whose probability may even have increased.”

The central bank of Jordan has cut its discount rate to 4.25 per cent and repo rate to 4 per cent. Overnight rates on the dinar will fall to 2 per cent. The cuts were effective yesterday. Jordan’s economic growth halved last year to about 3 per cent, and the cuts are intended to boost demand. (from Reuters)

Moody’s has raised Oman’s local and foreign currency government bond ratings to A1 from A2. The country ceiling for foreign currency bank deposits has also been lifted to A1 from A2 and the country ceiling for foreign currency bonds has been raised to Aa2 from Aa3. Oman’s local currency country ceilings remain at Aa2. The outlook on the ratings is stable.

“The main driver of today’s rating change is the comparative strength of Oman’s public finances within its rating peer group,” explained Tristan Cooper, a senior credit officer in Moody’s sovereign risk group. Read more

Banks are unable to lend as much as needed due to regulations on loan-to-deposit ratios, a senior banker said in Abu Dhabi yesterday. Banks need a liquidity injection from the central bank or a relaxation of the ratio requirement.

“The Central Bank has guaranteed all deposits,” Abu Dhabi Islamic Bank CEO Tirad Mahmoud told Gulf News. “So why do we pay 4 per cent [on deposits]: because we have to in order to meet the regulatory requirement.” Read more