Central bankers struggle to follow good advice 18 Mar 2015 Their global club, the BIS, is good at spotting trouble. Current worries include risk-taking enabled by easy money and illusory market liquidity. But rate-setters have to think domestic, not global. Their parochialism makes preventing crises much harder than predicting them.
Market expectations weigh heavily on Fed patience 17 Mar 2015 Traders expect overnight rates at or above 0.75 pct as 2016 nears. Without a crisis hangover they’d be above core inflation, running 1.4 pct. Hiking them – even from near-zero – carries risks. But with economic growth steady, the U.S. central bank needs to follow through.
Hugo Dixon: Is the ECB being unfair to Greece? 11 Mar 2015 The new left-wing government complains the euro zone central bank is meting out tougher treatment than it gave the previous right-wing administration. The difference is justified since Athens isn’t working well with its creditors. If that changes, the ECB should be more flexible.
Wobbly stock markets are in thrall to central banks 11 Mar 2015 Performance this year reflects likely monetary policy. The euro zone is set to ease: equities are strong and insiders are selling down stakes in Zalando, JCDecaux and others at a record clip. The U.S. market is weaker as tightening nears. Dollar-exposed Asian bourses struggle.
Mark Carney’s triple-bind is recipe for BoE stasis 11 Mar 2015 The UK economy is doing pretty well, which argues for a rate hike. But sterling’s export-denting rise against the euro is a reason to consider extra stimulus. And risks to the housing market abound either way. The Bank of England chief may just leave policy on hold for a while.
Turkey’s central bank is in a very tough spot 9 Mar 2015 Rate-setters are under pressure from President Erdogan to ease, despite a big trade deficit, high inflation and a weakening lira. The central bank is trying to square the circle, including by cutting forex deposit rates. It could all get much worse, if Erdogan pushes too hard.
EU bonus policy becomes a comedy of errors 5 Mar 2015 Capping variable compensation makes scant sense for bankers; it makes even less sense for asset managers. Doing so, as European authorities are now proposing, will do little for stability but push up compliance costs. The final irony is EU lawmakers didn’t even want it.
ECB’s clearing house defeat is good for Europe 4 Mar 2015 The European Court of Justice has nixed the central bank’s efforts to locate central counterparties in the euro zone. The ECB’s desire to closely monitor clearing is understandable. But undermining the EU single market would have been a practical and political mistake.
HK property shows limits of new central bank tools 3 Mar 2015 Regulators in the former colony have spent five years tightening mortgage controls, but real estate prices are still rising. It’s a reminder not to expect too much from “macro-prudential” policies. Authorities can stop banks from lending too much. Deflating a bubble is trickier.
China rate cut shows back-to-front monetary policy 2 Mar 2015 The clip to borrowing costs won’t much change life for credit addicts or for savers. The central bank’s move is little more than a signal from on high that planners are up with events. When it comes to managing the Chinese economy, official interest rates play a limited role.
Fed critics confuse independence with lack of bias 25 Feb 2015 U.S. lawmakers accused central bank Chair Janet Yellen of playing political favorites. Revealing more about her meetings wouldn’t hurt. But Fed officials favor different economic models that may reflect party divisions. That doesn’t mean they aren’t making their own decisions.
Vague Yellen more likely to surprise than soothe 24 Feb 2015 The Fed chair deftly parried conflicting calls for more patience and higher interest rates in congressional testimony on Tuesday. What she didn’t do is offer clarity on the timing of a rate hike. The strategy may calm markets now but ensures everyone will be caught off guard.
Japan’s inflation test: Mapping the road to 2 pct 23 Feb 2015 The central bank may yet hit its elusive goal, provided consumers spend, workers are productive and bond investors stay calm. A new Breakingviews calculator shows how much inflation Japan can expect after money-printing has ended. A 2017 sales tax hike would make the road harder.
Greek wordplay paves way for bigger U-turn 19 Feb 2015 Greece’s leader Alexis Tsipras has made his first concession. His government promises to extend the bailout with European creditors and accept temporary troika supervision. Yet the wording is nebulous and commitment to reforms weak. He will need to give more ground.
Indonesia rate flip flop shows Asia price worries 18 Feb 2015 The quarter percentage point cut in interest rates came just three months after an increase. Such jumpiness is rare, but rational. From China and India to Singapore, disinflation has taken central banks by surprise. They are now scrambling to keep real borrowing costs in check.
Easy money undermines Canada’s property prudence 17 Feb 2015 Sound lending and sensible regulation are formidable barriers against a housing crisis. Rising prices and debt weaken defenses. The Bank of Canada warns valuations appear too high – but its most powerful protection against a bubble, interest rates, are moving the wrong way.
Limp Japan recovery may be immune to monetary cure 16 Feb 2015 Though the economy has dragged itself out of recession, the annualised growth rate in the last quarter of 2014 was a tepid 2.2 percent. Money-printing can further weaken the yen and boost exports. But stronger domestic demand depends on creating more full-time, well-paid jobs.
Sweden shows ultra-easy policy is contagious 12 Feb 2015 The Swedish central bank has cut repo rates below zero. It’s also buying $1 bln-plus of sovereign debt. With plentiful stimulus in the euro zone, U.S. and UK financial systems, states that don’t take a tough anti-deflation stance risk seeing their currencies spiral.
Greece is creating room for deal with euro zone 10 Feb 2015 Athens is hinting it will accept most of its bailout programme and wants to change the rest. The government insists on more fiscal leeway and a debt swap. The negotiations with other euro zone members will be tough. But at least there is a basis for reasonable conversation.
Erste deal sees Hungary’s Orban thaw on banks 9 Feb 2015 The Austrian lender is to sell 15 pct of its Budapest-based business to the Hungarian state. Prime Minister Viktor Orban will cut a swingeing banking tax, while Erste will lend 550 mln euros in-country. Hungary’s growth prospects make this a mutually beneficial arrangement.