Monetary Policy

Sovereign downgrade will keep Beijing on its toes

24 May 2017

Moody’s has downgraded China for the first time since 1989, now ranking it below Taiwan. It is mostly symbolic as foreign debt ownership is minimal and local corporate ratings follow their own logic. But the public reprimand will check Beijing's ambition to attract funds onshore.

Germany is dealing with its bank-branch addiction

23 May 2017

Measly interest margins and rising capital requirements are forcing the country’s savings institutions to cut costs and shut branches. Germany still has more banks than petrol stations, but the shift is helpful, and may benefit big lenders like Deutsche Bank and Commerzbank.

India’s RBI risks a reputational downgrade

23 May 2017

The central bank may pick credit agencies to rate stressed loans, and help pay for the job. It is a bid to stop borrowers shopping for good scores. That could force agencies to adapt. But the idea may lead the regulator further into commercial decision-making.

ECB snared by bond-buying ambiguity

19 May 2017

European lawmakers have called for more transparency from the European Central Bank over its corporate bond purchases. The demands are flawed: the ECB discloses quite a lot and clarity can backfire. Yet it’s a reminder of the risks from central banks meddling in private credit.

Britain’s joyless job boom is nothing to celebrate

17 May 2017

A record three of every four working-age Britons is employed. But prices are rising faster than wages, and a post-Brexit crackdown on immigration threatens to limit further expansions in the workforce. That makes declining productivity an even bigger cause for alarm.

German bonds are caught between Mario and Macron

12 May 2017

Euro zone yields have risen in anticipation of tighter policy from ECB President Mario Draghi. But the euro zone’s fragility puts a cap on long-term rates. Changing that would require the kind of common fiscal policy imagined by new French President Emmanuel Macron.

For credit, ECB is more perilous than Le Pen

27 Apr 2017

The dwindling likelihood of far-right Marine Le Pen becoming French president has sent the cost of borrowing for risky companies to near-record lows. A correction could come once the European Central Bank withdraws support for bond markets – which is more likely if Le Pen loses.

Hadas: Nationalists are united by economic muddle

26 Apr 2017

Brexit fans want freer trade, Marine Le Pen is a protectionist and Donald Trump can’t make up his mind. Populists also disagree on fiscal deficits and industrial policy. What they share is an aversion to the truth that national prosperity starts with compromises on sovereignty.

Private sector tells awkward truth on China growth

18 Apr 2017

First-quarter growth beat expectations at 6.9 pct. But investment and consumption were unhealthily focused on property and infrastructure. Wariness among retailers and service providers illustrates the difficulties China still faces in rebalancing its economy.

Iceland needs euro peg like cod needs bicycle

4 Apr 2017

The North Atlantic state’s finance minister suggests fixing the crown’s value to its euro zone peer. Iceland’s economy could use cooling. But its volatility means that focusing attention on inflows – or even pegging to a more appropriate currency – makes more sense.

Dixon: Start preparing for fourth Greek bailout

3 Apr 2017

Despite a last-minute wrangle over pensions, Greece is likely to get the next chunk of the money due under its current bailout plan. But this will only buy Athens time until the middle of 2018. After that, a new programme, and more fraught negotiations, will probably be needed.

India bank bailout needs to clear two big hurdles

31 Mar 2017

In a poor democracy, it is particularly tricky to justify using taxpayers’ money to prop up banks which made dodgy loans. Meanwhile, state-owned lenders are scared of being accused of selling bad assets too cheaply. Any comprehensive bank cleanup will have to address both issues.

ECB’s mandate is best left murky

30 Mar 2017

Two members of the central bank's executive board have mused on its accountability, after a report criticised the ECB for overreach. It indeed pulled some pretty off-piste moves during the euro zone crisis. Yet clarity could constrain its ability to fight future crises.

Markets can ease Bank of England inflation dilemma

21 Mar 2017

Prices rose 2.3 pct in February, surpassing the central bank’s target for the first time since 2013. Market rates and sterling rose. This tightening in monetary conditions might allow Governor Mark Carney to defer a hike in official rates until the economic outlook is clearer.

Brexit could weaken Britain’s puny productivity

21 Mar 2017

As in most developed countries, UK companies are struggling to produce more with the same workers. Exporters and foreign-owned firms are the notable exceptions. If leaving the European Union squeezes trade and shrinks foreign investment, living standards will suffer.

Fed hike puts sand in economy’s consumer engine

15 Mar 2017

The U.S. central bank raised interest rates for the second time in three months. Healthy jobs growth and strong business confidence indicate an economy in good shape. Yet household debt is reaching record levels and higher borrowing costs will start to pinch people’s wallets.

Draghi is tugged towards tricky end of ECB easing

9 Mar 2017

The European Central Bank boss sees less need for more stimulus. It’s hard to say otherwise when inflation is on target and likely to stay near there. Yet Europe’s fragile economy makes ending asset purchases a treacherous task that he will want to postpone as long as possible.

Markets’ latest distortion: riskless company debt

7 Mar 2017

Some 200 billion euros of corporate bonds are trading below interbank swap rates – usually seen as a floor for credit risk. That renders one measure of companies’ creditworthiness redundant. This distortion comes courtesy of central bank meddling and German parsimony.

China has leeway to tackle local debt mountain

7 Mar 2017

Authorities say cutting the $2.2 trln local government debt pile is a 2017 priority. Past attempts failed. An improving economy gives Beijing room to address the issue, in part by boosting local tax power. Possible higher interest rates and lower land prices argue for haste.

U.S. consumers offer better prop for stock market

15 Feb 2017

American retail sales jumped in January while consumer prices rose at their fastest rate in four years, reflecting solid growth. Optimism about Donald Trump’s economic plans has lifted markets. Sound economic fundamentals are more reliable than the dysfunctional White House.