Monetary Policy

Crisis gives ECB cover to cast off rating shackles

22 Apr 2020

Central banks have historically steered clear of junk bonds. But the Federal Reserve’s move to buy debt rated below investment grade gives its European counterpart an excuse to follow. Moving swiftly would help it avoid a damaging crisis if the Italian government is downgraded.

Guest view: Mutual debt is spectre haunting the EU

22 Apr 2020

European leaders meet on Thursday to discuss how to tackle the economic costs of the pandemic. Collective borrowing is the most contentious item on the agenda. Carlo Altomonte of Bocconi University and Fabrizio Pagani of Muzinich explain how a joint “recovery fund” might work.

U.S. resistance will speed IMF innovation

16 Apr 2020

American opposition may scupper calls for the international lender to help poor countries by conjuring up more of its quasi-currency. Extending loans with strings attached makes little sense when dealing with Covid-19. The crisis will force the fund to become more flexible.

Virus forces Fed to clean up its own junk

13 Apr 2020

The U.S. central bank said it will buy bonds of some firms that lose investment-grade ratings. It’s a good compromise to avoid a high-yield market crunch. But companies binged on debt partly because of loose monetary policy. The Fed now risks distorting the price of credit.

Guest view: Recovery requires greater cooperation

7 Apr 2020

A rapid, “V-shaped” economic rebound after coronavirus passes seems increasingly unlikely, former Citi Chairman William Rhodes and Stuart Mackintosh argue. Policymakers must gird for a long haul back. A globally joined-up approach, which has been thus far absent, is critical.

Dixon: Helicopter money is a toy best left alone

6 Apr 2020

Some economists say central banks should fund coronavirus containment efforts by just printing money. That would risk fuelling inflation and undermining economic discipline. There are better ways to finance emergency packages to protect people and companies during the lockdowns.

U.S. has a handicap vs. Europe in this recession

1 Apr 2020

It’s easier to fire workers in America and welfare is less generous than across the Atlantic. That’s unhelpful for bouncing back from a virus-induced crash. Consumers will be less scarred in countries where businesses retain workers and social safety nets are strongest.

Australia fuels global race to flatten jobs curve

1 Apr 2020

Prime Minister Scott Morrison proposes spending some $80 bln subsidising wages for six months. That would cover about 70% of median pay for most and equal 6.5% of GDP. Increasingly generous pandemic stimulus measures in one country ultimately could help workers in another.

Fed’s virus response delivers its everyman moment

30 Mar 2020

The U.S. central bank was criticized for its 2008 financial crisis response that aided Wall Street. The current health emergency is spurring the Fed to help Main Street through small business loans. The move helps counter its elitist image and bolsters its political clout.

Corona Capital: Cirque du Soleil, Airlines, France

27 Mar 2020

Concise views on the pandemic’s corporate and financial fallout: Cirque du Soleil may leave TPG sunburnt. Airlines get a sweet bailout. And France joins the campaign against dividends.

Fed’s ultra-loose efforts will cast long shadow

23 Mar 2020

The U.S. lender of last resort is living up to its name. The latest extraordinary measures are needed but, like the response to the last crisis, may leave the system vulnerable to further debt buildup and asset bubbles. After the storm, policymakers will need a serious rethink.

Super-stimulus shows what Fed was made for

23 Mar 2020

As Covid-19 decimates the economy, the U.S. central bank pledged to buy unlimited Treasury and mortgage securities as needed, and backstop corporate credit. The resulting moral hazard is tomorrow’s problem. Combatting deflation and unemployment are why the Fed was created.

Bank of England deploys old tools for new problem

19 Mar 2020

New boss Andrew Bailey has cut UK interest rates to 0.1% and ramped up bond buying. Among the reasons for the easing is a deterioration in the government debt market that is leading to a tightening of financial conditions. Even massive asset purchases may not fix that headache.

Next G7 headache is a disorderly currency market

19 Mar 2020

The dollar is surging amid a dash for cash. Exchange rate swings are verging on the sort of unruly moves that policymakers say they dislike. Public expressions of displeasure can be the first line of defence. If these don’t work, official sales of the U.S. currency may be needed.

Christine Lagarde proves a worthy heir to Draghi

19 Mar 2020

The ECB boss echoed her predecessor’s “whatever it takes” pledge by unveiling 750 billion euros of new asset purchases. That eases tension in euro zone bond markets but can’t offset the global dash for cash. Crucially, she also opened the door for other once-taboo measures.

Fed will struggle to open discount window wide

16 Mar 2020

The eight biggest U.S. lenders are tapping the central bank’s emergency facility to help reduce its stigma. Ones that used the program during the financial crisis were publicly shamed. The likes of JPMorgan are setting a good example, but may not persuade smaller peers to follow.

Fed’s market fixes leave biggest problem unsolved

16 Mar 2020

Chair Jay Powell wants to ensure an ample global supply of dollars and avoid a repeat of last week’s U.S. bond market disorder. But measures like asset purchases will at best mitigate the stress. The root of tensions is the risk of companies going bust because of the coronavirus.

Chancellor: Monetary cure carries risk of its own

16 Mar 2020

Central bankers aren’t arguing that slashing rates and printing money will resolve the coronavirus panic. But the experience of the 1970s oil crisis suggests meeting a severe global supply shock with fiscal activism and easy money may bring inflation back in a nasty way.

Christine Lagarde makes hard ECB job even harder

13 Mar 2020

A blunt remark by the European Central Bank chief drove up Italian bond yields - the last thing she wanted. She could get away with not knowing what pushes traders’ buttons when markets were placid. But that lacuna means she’s facing a crisis saddled with a credibility deficit.

Central bank largesse is mixed bag for EU lenders

13 Mar 2020

Christine Lagarde and Mark Carney are giving banks free money and capital relief to fight a virus-induced slump. Investors will see few benefits, though. Higher dividends are taboo, and cheap funds will finance lower-cost loans. Balance sheets have become a social safety net.