Monetary Policy

Italy recession is oddly helpful for EU fiscal row

31 Jan 2019

The economy contracted for the second quarter in a row at the end of 2018. Rome is increasingly likely to miss a budget deficit goal of 2 pct of GDP but will get away with it. Imposing austerity during a broad-based euro zone slowdown makes no economic or political sense.

Fed patiently tells market it will be patient

30 Jan 2019

Stocks rose on the U.S. central bank’s comments reiterating that interest-rate moves depend on economic conditions. Ditto for the pace of shrinking its balance sheet. That’s nothing new, yet overly sensitive investors needed the reminder. For now the Fed is holding their hands.

Mario Draghi will deploy old tools in new slowdown

24 Jan 2019

The European Central Bank boss said growth may slow but offered no fixes. Resuming bond buying would be controversial, and a rate cut could hurt the financial sector. Renewing cheap loans to banks is his likeliest choice. The only question is how generous his terms will be.

Guidance is a two-way street with Fed and markets

10 Jan 2019

Jerome Powell says the U.S. central bank will be patient in weighing new rate moves. Previous hawkish comments unsettled investors, helping tank stocks last month. The two are learning to read each other, but a data-dependent message may get tricky if the economy starts to turn.

Looser China drops hints of trade pain ahead

7 Jan 2019

The central bank says it will slash the amount lenders need to hold in reserve, freeing up a net $117 bln. It’s not full-blown stimulus. Still, an easing move on the eve of talks signals Donald Trump may be right: China’s economy, and its negotiating position, is weakening.

Next ECB boss will matter less than his sidekick

3 Jan 2019

Most of those vying to replace Mario Draghi at the European Central Bank lack his creativity. Others will have more scope to sway debates. Ireland’s freethinking Philip Lane is favourite to be chief economist. He would have outsized influence, especially in the next downturn.

EU investment banks face the regulatory microscope

28 Dec 2018

With the region’s bad-debt crisis on the wane, supervisors will shift their focus to probing lenders’ risk models and 132 billion euros of hard-to-value assets. For banks which had previously relied on their own guesstimates, that could mean higher capital charges.

Japan is stealth threat to 2019 market stability

24 Dec 2018

Governor Haruhiko Kuroda’s tiny tweaks to ultra-loose policy will agitate global asset prices more than the actions of his U.S. or euro zone peers. Higher domestic yields are set to lure Japanese money back from U.S. credit or European debt markets and the yen will be buoyant.

Fed hike leaves Powell exposed in multiple ways

19 Dec 2018

The U.S. central bank raised rates despite criticism from President Trump. Slowing growth and bearish markets will only complicate its task going forward. The chairman will give more public talks in 2019 just as it gets harder to offer guidance. It could be a bumpy ride.

Italy’s budget truce may yet herald 2019 hangover

19 Dec 2018

Rome’s anti-austerity executive has ended a damaging EU row by backing down over its deficit, cheering domestic asset prices. But its restraint looks largely cosmetic. Investors may soon fret about the risk of a recession and how to refinance public debt without much ECB support.

India’s new central bank boss starts on back foot

12 Dec 2018

Ex-finance ministry official Shaktikanta Das was chosen to run the RBI, a day after Urjit Patel quit. Top marks for a fast pick. There’s little to suggest, however, that a bureaucrat who backed the prime minister’s fateful demonetisation plan will resist pressure from New Delhi.

Powell and Carney at least know their own limits

29 Nov 2018

The Fed chair irks U.S. President Donald Trump when rates rise, while the Bank of England boss took all-around flak for unveiling worst-case Brexit scenarios. Central bankers are imperfect but, unlike some critics, they rarely claim infallibility and usually show their workings.

Fed’s stability checkup downplays wobbly features

28 Nov 2018

Chairman Jerome Powell says the financial system is in good health, echoing a report from the U.S. central bank. The jobless rate is low while inflation remains in check. But risks like trade fights and corporate debt only get brief mentions. Watchdogs may regret that posture.

China’s too-big-to-fail rules go the right way

28 Nov 2018

Regulators have published new guidelines for supervising key banks, insurers and brokers. Of course, Beijing owns most big banks and failures are rare. But indicating who should be saved means others may be allowed to sink: that's a step towards liberalising a $40 trln industry.

Italian budget climbdown would be just a start

26 Nov 2018

The anti-austerity government may trim its 2019 budget deficit target to defuse a clash with the European Commission. That would ease financial market tensions which risked undermining any benefits of extra spending. The stimulus is still being spent in the wrong places, though.

Italian savers send Rome a warning on debt

21 Nov 2018

Private investors are shunning an issue of sovereign bonds reserved for them. Lacklustre interest in the “BTP Italia” undermines hopes that households will replace fleeing foreign buyers. It’s also a first sign of domestic discontent over Italy’s budget clash with the EU.

Hadas: Fear of fiscal deficits is overdone

14 Nov 2018

Mainstream economists agree that governments can safely spend more than they take in, but worry about big funding gaps. Some dissidents make a good case for going deeper in the red. They could be bolder. Most domestic borrowing can be replaced with straight money-printing.

Hadas: Central bankers stuck between two myths

8 Nov 2018

Monetary authorities dream of a neutral technocracy though their jobs are inherently political. Politicians from the U.S. to India fantasise about exerting more monetary control, but wild policies quickly turn toxic. The uncomfortable status quo may be the least bad arrangement.

UK exploits fiscal good luck while Brexit allows

29 Oct 2018

Finance minister Philip Hammond plans to control the deficit while spending more on health, defence and schools without big tax hikes. Economic serendipity allows him to. A messy EU exit would end a run of good fortune, since he has used up much of the windfall that came his way.

Struggling Filipino deals expose market flaws

29 Oct 2018

Local champion San Miguel was forced to shrink a stock sale while Melco met resistance to its casino takeover plan. Both episodes provide timely reminders about structural shortcomings for an exchange that trades less daily than smaller Vietnam. To grow will require some fixes.