Central Banks

IMF issues timely warning on ultra-low rates

21 Sep 2011

Just as Ben Bernanke and his crew contemplate further easing, a new IMF report lays out the multiple threats created by such loose monetary policy. In rich nations, small firms suffer while in emerging markets, capital inflows produce bubble conditions. The FOMC should pay heed.

Central banks dive in where markets fear to tread

15 Sep 2011

The Fed, ECB and other major central banks will give embattled euro zone lenders a boost by offering longer-term dollars. The move should ease fears of a funding crisis in the money markets. But it mustn’t incite banks to delay the restructuring of their weak funding profiles.

Stark resignation won’t alter ECB policy

9 Sep 2011

The unexpected departure of its chief economist is only the latest sign of ECB divisions on the debt crisis. His opposition to bond buying was already public. Stark’s decision will accelerate the changing of the guard in Frankfurt, but it won’t affect the ECB’s course.

Canada’s economy hampered by troubled neighbor

8 Sep 2011

The Bank of Canada has stopped raising interest rates at 1 percent, largely because of deteriorating U.S. conditions. That’s a pity - Canada would benefit from rates above inflation. But sluggishness and policy wrangling south of the border sap growth and push up the Loonie.

ECB keeps still in fast-changing world

8 Sep 2011

The central bank signalled an end to interest rate increases, and acknowledged a global slump is now a higher risk than inflation. President Jean-Claude Trichet sees the ECB as an “anchor” in financially troubled times. But there’s a fine line between stability and immobility.

ECB should cut rates now

5 Sep 2011

It would be an embarrassing U-turn but the European Central Bank should swallow its pride and reverse its recent interest rate rises. The euro zone risks falling back into recession even in its core economies, worsening the crisis in its weaker members. Rate cuts are essential.

Brazil can’t solve fiscal woes with rates alone

2 Sep 2011

Cutting the benchmark Selic rate to 12 pct isn’t inflationary, since CPI is only 7 pct and global rates are ultra-low. However the government runs big deficits in a huge boom with high commodity prices. That could boost prices down the road - or worsen any downturn.

EU bank funding backstop may need fine tuning

23 Aug 2011

As euro zone liquidity becomes more strained, the European Central Bank’s ability to cover any gaps with an unlimited supply of euros and dollars is vital. Yet that support can backfire if investors spot which banks are getting help. Lessons from the UK could be helpful here.

Downgrade of U.S. debt upgrades risk to raters

19 Aug 2011

Credit rating firms have somehow alienated both parties in Congress. And government investigations of S&P may spur legislative efforts. On partisan lines, these range from tightening Uncle Sam’s grip to removing his helpful imprimatur. Either result could change the rating game.

Finnish favouritism could unravel Greek rescue

19 Aug 2011

Greece’s bailout allows Finland to secure its loans with cash. Now other member states want the same deal, which would undermine the whole exercise. With either the rescue package or euro zone unity at stake, the EU’s biggest players may have to knock some heads together.

China’s bank rules promise safety, not stability

19 Aug 2011

Lenders will end up well padded against bad debts under new plans - a good job, since lots are coming. But the distortions that promote risky lending remain. With capital scarce, banks may also push more loans through China’s worryingly large “shadow” banking system.

EU banks’ summer funding lull may bring autumn woe

18 Aug 2011

Post-crisis reforms and central bank backstops mean Europe’s lenders are less vulnerable to a short-term funding freeze. But if markets do not reopen in the autumn, or if wholesale borrowing costs remain high, the economic fallout for the euro zone could be nasty

ECB’s dollar-swap safety net should cap bank pain

17 Aug 2011

The central bank has activated a facility that allows EU banks to access dollar funding. An unnamed lender has highlighted the stress in bank funding markets by paying up for seven-day liquidity. But the ECB’s ready supply of dollars should help prevent a Lehman-style crunch.

Rick Perry needs to backtrack on Fed charge

16 Aug 2011

The Texas governor and GOP White House candidate, like the U.S. central bank’s Dallas branch, doesn’t much like its money-printing policies of late. But words like “treasonous” cross a line and further dent Fed independence. Perry could struggle if he doesn’t tone it down.

Central banks at the limits

10 Aug 2011

QE or not QE? Fears of renewed global recession come as central bankers seem short of options. Money printing carries big risks, and failed currency interventions add to the impression of impotence. The radical solutions are there. But they might be better kept locked away.

EU bank funding headed back to emergency room

5 Aug 2011

The 2008 liquidity squeeze triggered a credit crunch and massive bailouts. Though Europe’s banks are in better shape today, turmoil in the euro zone means some lenders can once more only get overnight funding. That leaves the European Central Bank squarely on the hook - again.

Trichet is right to make Italy sweat

4 Aug 2011

The ECB is turning a deaf ear to the Italian finance minister’s suggestion that it buy the country’s bonds. In a further snub, the central bank resumed its bond-buying programme - for Irish and Portuguese securities. Italy must reform before it asks for help.