Imported inflation from emerging countries can no longer be ignored, and central banks on the receiving end might need to tightly constrain domestic inflation to compensate.
This from an important speech by Lorenzo Bini Smaghi today in Bologna. The ECB executive board member points out that food inflation is here to stay and the era of ever-cheaper TVs is over, too:
Unlike the previous decade, the process of reducing the prices of manufactured goods imported from developing countries seems to have ended, particularly in respect of products imported from China. The gradual appreciation of the exchange rates of these countries should further affect the prices of products imported from advanced countries.
So several factors are working to increase imported inflation: Read more
The central bank of Holland might soon be able to take over troubled financial companies, and sell their shares, assets or liabilities without shareholder approval. Bloomberg says the Dutch Finance Minister is preparing a draft bill, which would provide an alternative to the “financial reorganization option” in the emergency procedure, which has “proven ineffective” according to central bank governor Nout Wellink.
Canada’s central bank is the latest to ask whether central banks should expand their remit beyond inflation targeting. “If we look only at interest rates, inflation and output, we may miss bubbles and other elements of systemic risk as they build,” Canada’s deputy central bank governor said on Tuesday.
Tiff Macklem said the Bank needed to develop models that include elements of banking and capital markets. “When the financial system is not working normally,” he said, “we cannot rely on the short-cut from interest rates to output and inflation.” The WSJ recently reported the Fed was also developing a more comprehensive model, the Quantitative Surveillance Mechanism (QSM). Read more
It’s official: financial system stability is part of the Reserve Bank of Australia’s mandate. This doesn’t mean, though, that the RBA will be bailing out banks.
The Reserve Bank’s mandate to uphold financial stability does not equate to a guarantee of solvency for financial institutions, and the Bank does not see its balance sheet as being available to support insolvent institutions.
With little fanfare, a statement published on the Bank’s website “records [its] common understanding of the Reserve Bank’s longstanding responsibility for financial system stability… arrangements which served Australia well during the recent international crisis period.” Read more
The bond markets might be overdoing it a bit at the moment, Guy Quaden has acknowledged. Asked whether bondholders were wrong to fear deflation, the ECB governing council member told Belgian business dailies L’Echo and De Tijd:
“You cannot rule out that the bond markets are overdoing it at the moment… But deflation is as unlikely as strong inflation. Central banks will do anything to avoid deflation. They do not tolerate high inflation.“
Asked why the ECB had decided to extend to Q4 its offer of unlimited short-term credit to banks, Mr Quaden said that the money market was often more nervous toward the end of the year, and that certain longer-term refinancing operations were due to expire in the period. He underlined, however, the temporary nature of the help: “The banking industry,” he said, “cannot depend forever on the exceptional credit of the ECB.”
On the subject of fiscal austerity, he said neither he nor Jean-Claude Trichet would argue for brutal and immediate austerity, except in Greece. Read more
Argentina’s central bank on Thursday relaxed key monetary targets after overshooting annual goals for growth in monetary aggregates, heralding a stance that favours stoking growth over reining in inflation.
It is the first time the central bank has failed to meet the monetary programme since Argentina introduced the method in 2003, and points to a central bank increasingly at the service of a spendthrift government, which ejected the former central bank president earlier this year for refusing to hand over reserves to pay debt. Read more
Irish banks might never be the same. New bank regulation legislation was passed yesterday, 69-65. The bill is now off to the upper house, the Seanad.
The Central Bank Reform Bill would merge the central bank with the regulator, giving the regulator’s consumer information roles to the national consumer agency. The new integrated central bank and regulator would be called the Central Bank Commission. Read more
Poland’s government can expect tough scrutiny of its efforts to cut the budget deficit from Marek Belka, the country’s new central bank governor.
In an interview with the FT today, Belka says: “I will remind the government to keep its promises.” For Belka, a deficit hawk and a former Polish prime minister and finance minister, even the 3 per cent budget deficit target of the Polish government and many other European countries is not ambitious enough.
“We should not forget that the growth and stability pact talks about 3 per cent not as a goal but as a maximum,” he says. “The real goal is a balanced public sector budget over the economic cycle. Over the longer term we should be aiming at a surplus.”
For Belka, the model of fiscal probity is Germany, Read more
What role for central bankers in the future? I have just been speaking to Stefan Ingves, governor of Sweden’s Riksbank, who argues that he and his colleagues may have to be more outspoken in the future in warning about risks to financial stability.
Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS