Monetary Policy

India signs up banks for a pre-election campaign

2 Feb 2023

New Delhi is topping up a loan backstop scheme for small firms. The plan will drive $24 bln of funds to a bruised set of borrowers that are also a key voting bloc in polls next year. The plan may cause banks some pain, and it risks entrenching structural economic snarls.

Bottling U.S. inflation could cost workers dearly

1 Feb 2023

Winning the battle against rising prices could swell America’s jobless ranks by nearly 1 million, if the Fed’s own estimates prove correct. That assumes it remains relentless in the quest for inflation of 2%. But given the cost, it’s not clear that such precision is needed.

Sick Britain no longer needs Dr Bailey’s medicine

1 Feb 2023

The Bank of England is likely to raise its key interest rate to 4% on Thursday. That would be a step too far. The UK is nearing a recession, consumers are suffering and inflation is abating. The higher Governor Andrew Bailey hikes rates, the more drastic cuts will likely follow.

Capital Calls: McDonald’s, Spotify

31 Jan 2023

Concise views on global finance: The burger chain’s comparable sales growth despite rising prices proves there’s pricing power at the bottom of the market; shares in the $21 bln music-streaming service leapt after founder Daniel Ek unveiled rapid subscriber growth.

Three carry trades for a new monetary policy era

27 Jan 2023

Central banks’ moves mean that investors borrowing money in yen and placing it in U.S. assets – a once-popular “carry trade” – are no longer onto a sure-fire winner. They can do better by shorting the euro and investing in Mexico, Brazil or Hungary.

Bank of Japan has learnt danger of half-measures

18 Jan 2023

The central bank’s decision to stay put on interest rates saw the yen soften and hurt 10-year bond yields. Last month’s surprise tweak to bond trading bands failed to impress traders. Inaction may be painful and expensive, but muddled economic signals make it understandable.

Expansionist dreams threaten ECB digital euro plan

17 Jan 2023

As the European Central Bank develops its own online currency, politicians want a big say. Hostility from some rubs against the ECB’s cautious enthusiasm. Yet if political forces push a digital euro to be more global than the ECB is ready for, it may weaken financial stability.

European inflation control is a double-edged sword

6 Jan 2023

Prices in Spain or France have risen less than in other big euro zone economies. One reason is lower dependence on Russian energy, but government price controls also helped smooth the shock. The risk is that suppressed inflation will catch up after the crisis subsides.

Central bankers will shift inflation goalposts

19 Dec 2022

The Federal Reserve, ECB and others insist they’re determined to get price increases back down to 2% a year. Though the target is arbitrary, changing it is tricky. But stubborn inflation means monetary authorities will have to find ways to tolerate rising prices for longer.

ECB, BoE will fight to regain anti-inflation mojo

15 Dec 2022

The European Central Bank and the Bank of England hiked rates by 50 basis points, less than recent jumbo increases. Recession fears, and the central banks’ initial hesitancy, are making investors sceptical of a sustained tightening. Sticky inflation will prove them wrong.

Inflation confusion increases odds of ECB mistake

30 Nov 2022

Euro zone prices rose a less-than-expected 10% in November, yet remained stubbornly high after stripping out fuel. That leaves central bankers in a pickle. To burnish their hawkish credentials with a sceptical market, they may keep tightening policy even as the economy falters.

Capital Calls: Fuzzy Fedspeak, Dr. Martens

24 Nov 2022

Concise views on global finance: The U.S. central bank has left traders guessing the meaning of the word “various”; shares in the recently listed British bootmaker fell 20% after sales missed expectations, and a warning that its investment needs will hurt profitability.

If 8% inflation is worrying, 3% could be worse

2 Nov 2022

With U.S. prices rising at their fastest in 40 years, the Fed must keep raising rates. But what if inflation slows only to hover above the central bank’s 2% target? That would present two unappealing choices: Move the goalposts, or squeeze a creaking economy even tighter.

Europe’s diverging prices complicate ECB’s task

1 Nov 2022

Inflation is running at 7% a year in France and 22% in Estonia. These differences make the European Central Bank’s stance too aggressive for some states and too timid for others. The controversy about monetary policy will only intensify as the ECB pushes rates higher.

Capital Calls: ECB’s bank-earnings squeeze

27 Oct 2022

Concise views on global finance: Seeking to shrink its balance sheet, the European Central Bank introduced less favourable terms for cheap loans it offered to lenders during the pandemic.

ECB $2 trln bank-loan unwind is fraught with peril

25 Oct 2022

The European Central Bank may tweak a funding scheme to stop lenders minting money at its expense. Fiddling with the terms is legally dubious. Other options could undercut its fight against inflation. But the status quo, indirectly costing taxpayers billions, is unsustainable.

Central banks get sucked into financial black hole

14 Oct 2022

Bank of England Governor Andrew Bailey and his peers are raising interest rates to fight inflation. But indebted households, governments and companies make it hard to break free from ultra-easy money. The turmoil will force central banks to change course, says Edward Chancellor.

Bailey outburst blunts BoE crisis-fighting tools

12 Oct 2022

The Bank of England governor vowed to stop bond-buying designed to help pension funds, despite suggestions he might extend it. In the current turmoil, subtlety and strategic ambiguity are key BoE tools. Andrew Bailey has instead locked himself into a path he may need to reverse.

BoE drawn into risky game of financial whac-a-mole

11 Oct 2022

The Bank of England said it would buy more bonds to avert a fire sale by pension funds. Its plan to end such support on Oct. 14 is hampered by a distressed bond market, and wayward government. Governor Andrew Bailey risks either backtracking again, or letting the economy suffer.

Capital Calls: Trustbusters’ metaverse gambit

10 Oct 2022

Concise views on global finance: The Federal Trade Commission dialed back some of its arguments against Meta’s latest VR deal – but still faces a difficult needle to thread.