Monetary Policy

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.

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.

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.

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.

Money travels in Hong Kong even if people can’t

10 Dec 2021

The HKMA and PBOC trotted out a roster of banking and regulatory grandees to defend the city’s position as a financial hub. Hosting such an event at all suggests extended isolation is a growing worry. They make a strong case, however, about the power of capital flows into China.

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.

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.

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.

Chancellor: China’s economic miracle is ending

11 Nov 2021

President Xi Jinping wants to deflate the housing bubble and deleverage the economy while maintaining high growth rates. But every country that, like China, adopted the so-called Asian development model eventually faced a crisis. There is no easy way for China to avoid one.

Central Europe is monetary policy’s control test

8 Nov 2021

The Czech, Polish and Hungarian central banks are hiking interest rates, the traditional riposte to rising inflation. In contrast, peers in major economies are responding less aggressively to price pressures. That makes for an interesting experiment.

UK wades into central banks vs. markets fray

4 Nov 2021

Bank of England boss Andrew Bailey has a different mandate from Fed Chair Jay Powell. But his basic challenge is the same: persuading investors that interest rates won’t rise as much as they think next year. The Briton’s old-school inflation target makes his job harder.

Powell’s path to second Fed term becomes wider

3 Nov 2021

Joe Biden has few easy wins in sight. One is renominating the U.S. central bank chair. He would probably gain Senate approval, and progressive critics are in retreat. Inflation could be a challenge, but other candidates are more dovish. Biden has other policy battles to fight.

ECB needs a louder megaphone to reach bond markets

28 Oct 2021

President Christine Lagarde said she won’t hike rates as soon as investors anticipate. But that didn’t change their expectations and euro zone debt yields rose. She will have to do a better job of convincing them if she is to avert an unwanted tightening in financing conditions.

ECB has the least worrying inflation problem

1 Oct 2021

Euro zone consumer prices rose 3.4% in September, strengthening the hand of those who want boss Christine Lagarde to wind up emergency monetary stimulus. But structural unemployment is higher, the economy less robust and fiscal policy less stimulative than in the United States.

Easing crisis leaves Lagarde with tough transition

30 Sep 2021

The European Central Bank boss will have to fall back on a pre-pandemic bond-buying scheme once its emergency purchase programme runs out. The former is less flexible and may force Christine Lagarde to choose between flouting rules or curtailing support to the fragile economy.

Stagflation jitters are at least half wrong

29 Sep 2021

High inflation and stagnant activity would be a noxious mix for markets. Central bankers have the tools, and likely the will, to combat the former. But when price pressures are a symptom of supply shocks, as now, monetary policy is a crude weapon that will lead to weaker growth.

Turkey goes deeper into parallel monetary universe

23 Sep 2021

Ankara cut its main policy rate to 18% from 19%, kowtowing to President Erdogan just as other central banks take the opposite tack. A weaker lira and soaring energy bills add to the economy's inflation pains. With two years to another election, there’s little respite in sight.