Monetary Policy

Curbing German exceptionalism has political price

11 May 2020

A national court’s ruling on ECB asset buying has challenged the primacy of EU law. If politicians can’t defuse the stand-off, Brussels will have to take legal action against Europe’s paymaster. The fiasco is likely to give Euroscepticism across the continent a boost.

Turkey’s policy sins will be visited on companies

7 May 2020

The lira fell to a record low against the dollar. The central bank set interest rates too low in the past, then depleted FX reserves to limit the exchange-rate damage. Its war chest is too small to prevent further depreciation. Disaster looms for firms with foreign-currency debt.

Andrew Bailey will have the UK bond market’s back

7 May 2020

The Bank of England boss expects a big drop in GDP this year. His asset purchases have pushed down gilt yields despite surging public debt issuance. Investors can count on Bailey to ramp up the buying programme given how long the economy will take to recover from the virus.

Poor-country central banks will go awry aping Fed

4 May 2020

Rate-setters from Indonesia to Hungary are copying Fed Chair Jay Powell by buying bonds. Others could well follow. That will curb borrowing costs at a time of rising public spending. But these policymakers run bigger inflation and credibility risks than their developed peers.

Free ECB money is little use for battered banks

1 May 2020

President Christine Lagarde launched yet another programme to slash funding costs for lenders. History suggests much of the benefit will flow straight to borrowers, as intended. Loading up on southern European debt would be profitable but risky, and may irk supervisors.

Central bankers have more cards up their sleeves

29 Apr 2020

Fed Chair Jay Powell and his peers have fashioned new tools to fight the Covid-19 crisis. In future downturns, they could copy the BOJ’s stock buying and, in extremis, consider financing governments directly. Only surging inflation or overt political meddling will hold them back.

Christine Lagarde will need an even bigger bazooka

29 Apr 2020

The ECB boss is snapping up so many bonds to keep Italian and other southern euro zone debt yields in check that she may soon have to augment the 750 billion euro purchase plan unveiled less than two months ago. The more she does, the more squabbling time she buys EU leaders.

Bank of Japan gifts Abe massive monetary backstop

27 Apr 2020

The central bank says it will buy unlimited government bonds to support a $990 bln stimulus package, plus ramp up purchases of other assets. That helps the prime minister hold off catastrophe, but the BOJ’s balance sheet is getting even more massive with no end in sight.

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.