Central Banks

Christine Lagarde will win rate rise timing tussle

19 Jan 2022

Money markets imply the European Central Bank will hike twice this year, even though its boss says policy tightening is unlikely in 2022. She will have to work hard to convince markets, but reason is on her side. Wage pressures are less evident in the euro zone than in America.

The Fed is lowballing the path of interest rates

18 Jan 2022

Pundits love to guess when Chair Jay Powell will tighten monetary policy. But that matters less than where rates end up. Most Fed officials think this so-called terminal rate is around 2.5%. Given higher inflation, that’s probably too low. Markets are starting to realise that.

Banks’ rate-rise rewards may be bigger than ever

17 Jan 2022

Deposits at large U.S. lenders are up by a third since 2019 to $11 trln. They’ve stashed much of the cash in central-bank reserves, which immediately earn more as rates go up. Tighter monetary policy usually helps banks, but especially so given their current mix of assets.

Stressed Beijing will buck Fed’s tightening trend

17 Jan 2022

China's reported output grew 8.1% in 2021, well above target, but activity slowed sharply at the end of the year. Monetary easing has been restrained by debt concerns, but the central bank surprised markets with a rate cut on Monday. Low inflation and a strong yuan give room for more.

Central banks will give risky debt a helpful shock

13 Jan 2022

Benchmark bond yields are rising as rate-setters around the world scale back asset purchases. That will reduce the appeal of corporate debt, but a correction in credit markets is nothing to fear. A setback may lead to less hazardous terms for bondholders, and a rout is unlikely.

Turkey’s lira prop-up plan is dangerous

21 Dec 2021

President Tayyip Erdogan is guaranteeing deposits against local currency drops. It’s tacit admission Turkey’s banks aren’t immune to fallout from his odd views on inflation and interest rates. Details are fuzzy but putting taxpayers on the hook for the lira is asking for trouble.

Capital Calls: Bundesbank, Biogen

20 Dec 2021

Concise views on global finance: The new head of Germany's central bank is a reassuringly boring choice; cutting the price of its Alzheimer's drug could help Biogen squeeze something out of what looks like a flop.

Trailblazing UK rate rise may pay off in the end

16 Dec 2021

The Bank of England is the first major central bank to hike its policy rate. The ECB faces less acute price pressures and the Fed must consider the job market alongside inflation. It’s a gamble, but acting now means British rate-setters will have less hiking to do in the future.

New Fed dot plot joins unreliable post-Covid data

15 Dec 2021

The U.S. central bank’s signature chart of interest-rate expectations now foretells three hikes in 2022. But the forecasters will change as three seats on the Fed’s board open up. Other economic reports and the recovery are also hard to interpret. The dots are far from settled.

Switzerland has rich-world foreign reserve problem

15 Dec 2021

After years of intervening to curb franc strength, the central bank has amassed $1 trillion in foreign currency investments. A group of academics suggests converting this into a sovereign wealth fund but that would bring its own worries. Wisely investing so much money isn’t easy.

Inflation genie will be hard to banish

10 Dec 2021

Consumer prices will rise at a less hectic pace in 2022. But they’ll still overshoot targets that Fed Chair Jay Powell and his peers aim to hit. Policymakers are less apt to hit the brakes on stimulus than in years past. Also, businesses and workers are behaving differently.

China’s PBOC showdown will force Xi to pick sides

9 Dec 2021

Officials want to rein in the central bank’s “independence”, according to a media report. It’s the latest sign of a concerted attack on the PBOC’s hard line on deleveraging. If the Chinese president joins in, aggressive easing may be imminent at the cost of economic rebalancing.

Take China’s easing signals with a grain of salt

7 Dec 2021

Beijing is flagging a fresh focus on economic stability as growth slows, dropping tough talk about tech monopolies while pumping $188 bln into banks. Some battered sectors will get political breathing room, but this probably isn’t the sort of stimulus investors are looking for.

Capital Calls: Volkswagen, Turkey

1 Dec 2021

Concise views on global finance: The German carmaker may take mining stakes to secure electric-vehicle raw materials, echoing Henry Ford, the U.S. production-line pioneer; the Turkish central bank is resorting to old tricks to prop up the lira but it’s an unsustainable strategy.

Transitory isn’t the only thing Fed should retire

30 Nov 2021

Chair Jay Powell reckons it’s time to stop using this adjective to describe current high inflation rates. That’s welcome, if overdue. Rate-setters could also usefully retire forward guidance. In such uncertain times, it’s counterproductive to appear to commit to a policy path.

Omicron may give inflation a chance to bed in

29 Nov 2021

The new coronavirus variant could ease short-term price pressures if it triggers wider lockdowns that curb consumption. But if it prolongs supply-chain problems the reverse will be true in the longer term. Especially if cautious central bankers delay tightening monetary policy.

New Covid-19 variant raises risk of recovery limbo

26 Nov 2021

Britain and others have revived travel bans on South Africa amid a new viral mutation. Countries with low vaccination rates are most vulnerable. But if the virus evades vaccines, new lockdowns may be necessary at a time when governments and central banks have depleted firepower.

Viewsroom: Barbarians invade Rome; Biden’s Fed

25 Nov 2021

The board of Italy’s phone monopoly has a golden opportunity to end years of creeping control, poor governance and dismal performance by considering a sale following the unsolicited $12 bln bid from KKR. And Gina Chon explains why Jay Powell has the hardest job in finance.

Powell is best person for finance’s worst job

22 Nov 2021

The Fed chair faces a tough second term: Raise rates too quickly and he’ll hurt jobs, move slowly – as dovish vice chair pick Lael Brainard may favor – and inflation could mount. Economic indicators offer less help than they used to. Given the uncertainty, Powell is a safe bet.

Voters are last brake on Turkey’s lunatic express

19 Nov 2021

Bullied by President Tayyip Erdogan, the central bank slashed borrowing costs to 15%. Fearing runaway inflation, the lira plunged to record lows. With few other checks on a leader at war with interest rates, 2023 elections may be Turks’ best hope of restoring monetary sanity.