Rob Cox: Wall Street in grip of Geithner nostalgia 2 Dec 2014 When the former U.S. Treasury boss made a surprise visit to a recent gathering of bank CEOs, the warm welcome he received could be misinterpreted as appreciation for an old softy. In fact, it was recognition that the current regime doesn’t have its heart in financial regulation.
India may boast world’s steepest rate cuts in 2015 2 Dec 2014 The Reserve Bank resisted strong pressure from the government to start cutting interest rates from their current 8 percent. Governor Raghuram Rajan wants more proof of correction and disinflation. It may be a short wait. A weak economy urgently needs lower borrowing costs.
ECB could easily manage QE sovereign risk 2 Dec 2014 Critics say sovereign bond-buying could expose the ECB to risky countries and possibly trigger fiscal transfers. The argument is good in theory. Yet based on the ECB’s target, the exposure could be lower than in 2013 – when the central bank held more debt from the periphery.
Putin’s Russia can’t easily escape rouble debacle 1 Dec 2014 The Russian currency is sinking along with the oil price. A central bank interest rate hike would hurt the struggling economy. Reforms reducing the country’s dependence on oil might increase confidence, but Western sanctions are squeezing the government and the financial system.
Japan downgrade out of step with new QE world 1 Dec 2014 By normal debt logic, Moody’s is right to lower the rating of a sovereign struggling to cut its huge deficit. But yields keep falling as the central bank effectively monetises. The lesson: money-printing governments can always dodge default – and they may duck inflation too.
India in depth: Time to follow China on rates 26 Nov 2014 Global disinflation is creating room for the Reserve Bank to follow its counterpart in Beijing and cut borrowing costs. Unlike the People’s Republic, India doesn’t need to worry about triggering overinvestment. Monetary easing now would have few risks, and several benefits.
Carney’s bonus cap workaround itself needs a cap 25 Nov 2014 A legal defeat on EU bonus caps has the UK calling for global rules to claw back bankers’ fixed pay too. The BoE governor’s idea to pay part of salaries in deferred bonds would achieve that. But there are limits: cut pay too far - or delay it too long – and London might suffer.
China monetary policy enters difficult adolescence 24 Nov 2014 Cutting rates, as the central bank just did, is far less simple than when China’s economy was in its pliant infancy. New ways to save, borrow and arbitrage have sprouted, and don’t all respond predictably to orders. It will take more to alleviate private sector growing pains.
China’s rate cut shows depth of growth concern 21 Nov 2014 The first cut to lending rates since 2012 shows the limits of Beijing’s tolerance of slowdown. It should save some riskier loans from going bad, and breathe some life into a zombified property market. But huge adjustments remain, and long-suffering savers will still be left worse off.
Draghi’s anti-deflation war requires fiscal help 21 Nov 2014 The ECB president has gone further than ever before by pledging to raise inflation “as fast as possible.” His is a lonely fight and the central bank will soon reach the limits of what it can do. Draghi can only succeed if governments embark on more fiscal stimulus.
Time for ECB to overhaul its secret weapon 21 Nov 2014 Leaked central bank correspondence from the recent Cypriot crisis underlines how emergency liquidity assistance to weak banks had become ad hoc and political. Now that the ECB is supervising euro zone banks, it should take over - with ELA risks shared by all member states.
Pricing most important market risk is a struggle 13 Nov 2014 Market liquidity is a bit like oxygen. Taken for granted when ubiquitous, horribly missed in absentia. Unfortunately, this precious commodity is proving hard to price. Even central bank gauges can’t quite capture its patchiness. Investors are worryingly vulnerable to big jolts.
Ultra-dovish Carney still looks too bullish 12 Nov 2014 The Bank of England could hardly be less keen to raise rates. But the forecast by Governor Mark Carney that it will take three years for inflation to rise to the 2 percent target is based on implausibly fast growth. The timeframe for tighter money will keep being pushed back.
ECB visits creative destruction on covered bonds 11 Nov 2014 The European Central Bank’s bid to boost its balance sheet by 1 trillion euros is distorting the prices of the covered bonds it’s buying. Inefficient markets can breed trouble. But that may be the necessary collateral damage of central bank action.
Only Putin can stop rouble’s fall 7 Nov 2014 Russia’s currency is sinking. The central bank is blameless. Neither intervention nor higher rates can support the rouble. The economy is deteriorating and reform hopes are fading as Moscow retreats into isolation. The situation will persist until the president changes policy.
Japan’s banks may swap old nemesis for new foe 7 Nov 2014 The central bank’s bond-buying spree will relieve lenders of the burden of financing an overextended government. But if companies don’t invest, lenders may use cheap cash to stoke bubbles in stocks and property. Japanese banks may start living more dangerously than before.
Unrepentant Draghi rams message home 6 Nov 2014 The European Central Bank president has resisted hardliners’ efforts to rein him in and slow down monetary easing. His press conference comments were clear: other tools will be used if the euro zone economy needs them. The euro fell as soon as investors saw hawks in full retreat.
Rising ECB opposition could be Draghi’s albatross 5 Nov 2014 Some members of the ECB’s governing council are frustrated at Mario Draghi’s policies and personal style, Reuters has revealed. Divergences are normal within central banks, and the ECB president is still backed by a solid majority. But from now on he’ll have to be more careful.
Bank of Japan bond vault may resemble a black hole 5 Nov 2014 The central bank will suck more than 7 percent of outstanding government bonds into its gravitational pull next year. The longer this goes on, the stronger the investors’ belief that they will never see that debt again. Any dent in that confidence could be highly upsetting.
BoE leverage rule is complex, kind and incomplete 31 Oct 2014 UK bank shares rallied after the regulator published requirements for equity-to-assets of up to 4.95 pct, but not until 2019. The BoE’s move to peg gross leverage to risk-weighted thresholds should prevent arbitrage, but fails the simplicity test. It is also a work in progress.