Monetary Policy

Interest rate delusion may be biggest error of all

6 Oct 2022

Bear markets occur when a previously dominant idea is proven wrong. The current selloff in bonds and stocks reflects the mistaken belief that the cost of money would stay low. For investors, the full consequences of that colossal mistake are unknowable, says Edward Chancellor.

The end of cheap money reveals global debt problem

3 Oct 2022

Borrowing has risen to more than 250% of world GDP, far more than before the 2008 financial crisis. Rising interest rates and low growth make this burden harder to bear, causing economic stress in Europe, China and the Global South. This will poison geopolitics, says Hugo Dixon.

Tax U-turn leaves UK’s Truss with credibility gap

3 Oct 2022

Prime Minister Liz Truss’ move to scrap a tax cut for high earners lowered government bond yields and boosted the pound. But her policies still rely on unfunded giveaways and rosy growth hopes. Investors’ loss of confidence from the crisis makes her agenda even harder to achieve.

“Help to Refi” could be UK’s next financial wheeze

30 Sep 2022

Prime Minister Liz Truss’s rash tax cuts have rattled the government bond market. She needs to attract investors and bring yields back down. The “Help to Buy” scheme to subsidise mortgages offers a template. Breakingviews imagines a fictional adviser taking up the challenge.

BoE remedy can only be partial cure for UK ills

29 Sep 2022

The UK central bank launched $70 bln of bond-buying after PM Liz Truss’s budget triggered market chaos. That has stemmed a financial crisis among indebted pension funds. Stopping the market exerting economic pain requires a fiscal rethink from politicians, not more BoE action.

Behind Britain’s self-inflicted financial crisis

28 Sep 2022

Sterling fell to a record low and gilt yields soared after finance minister Kwasi Kwarteng unveiled a raft of unfunded tax cuts. In this Viewsroom podcast, Breakingviews columnists explain the long-term damage to the UK’s credibility and what will rebuild investors’ confidence.

BoE’s bond-buying U-turn is worth the risk

28 Sep 2022

The Bank of England will buy UK sovereign debt and delayed sales of its $915 bln bond portfolio due to market “dysfunction”. The danger is Governor Andrew Bailey looks too close to the government whose tax cuts caused the turmoil. Yet calmer markets make it easier to hike rates.

UK swaps one cost-of-living crisis for another

27 Sep 2022

The Bank of England may raise rates past 5% to stem the inflationary effect of Chancellor Kwasi Kwarteng’s tax cuts. Homeowners, saved by the government’s energy price cap, now face a surge in mortgage costs. That will sap growth and add to pressure for banks to help customers.

Tokyo blinks in game of forex chicken

22 Sep 2022

Japan has responded to the Federal Reserve’s rate hikes by moving to prop up the staggering yen, the first intervention since 1998. The country’s economy and Bank of Japan Governor Haruhiko Kuroda’s loose policy make it unlikely the plan will work. The attempt may even backfire.

Bank of Japan needs to pick yen battles carefully

15 Sep 2022

The central bank is signaling it may soon intervene as its currency hits 24-year lows. Slowing rather than reversing the U.S. dollar’s rates-driven strength may be achievable, but even that demands a cannier deployment of weaponry than just throwing money at the problem.

Trussonomics may freak out the markets

5 Sep 2022

If the UK’s new prime minister was only planning big energy subsidies, investors might not worry too much. But Liz Truss is also planning tax cuts – and may pick fights with both the Bank of England and European Union. If so, the pound could be clobbered, says Hugo Dixon.

ECB has reasons to avoid a panicky hike

2 Sep 2022

The European Central Bank looks set to jack up interest rates next week. Persistent inflation warrants some monetary tightening. But too sharp an increase would exacerbate the chances of a recession, at a time when rising debt gives governments less room to fight back.

People’s Bank of China is victim of own success

1 Aug 2022

The central bank sustained growth without aggressive easing through Covid and war in Ukraine, keeping inflation in check. However, its attack on financial risk tipped over the $52 trln housing market, and other fundamentals are wobbling. Unfortunately, the PBOC can’t help much.

Russia’s macro health hides chronic deficiencies

22 Jul 2022

Oil and gas exports and lower imports mean the rouble is strong, and GDP hasn’t yet collapsed. But longer term, Moscow needs to aid inflation-hit consumers, and help sanctions-hit firms fill the gap left by departing Western rivals. Graft and a brain drain will make that hard.

ECB plays with fire while unspooling its hose

21 Jul 2022

President Christine Lagarde hiked interest rates by 0.5%, double the amount she flagged last month, and unveiled a vague tool to control euro zone bond yields. If monetary tightening hastens an economic slowdown, the central bank will need its new powers sooner rather than later.

ECB risks forgetting 1990s currency crisis lessons

18 Jul 2022

President Christine Lagarde may soon unveil the central bank’s tool to control sovereign bond yields. Struggles with semi-fixed exchange rates before the euro offer a cautionary tale. To fend off speculative attack, authorities are best off keeping targets and methods vague.

Review: A timely warning of central bank folly

8 Jul 2022

Were 15 years of ultra-low interest rates a miracle cure for the world economy or an epochal mistake? Edward Chancellor’s “The Price of Time” makes a strong case for the latter view. As policymakers hike rates to combat resurgent inflation, fixing the error involves large risks.

Hong Kong banks are slow to gain from rate rises

7 Jul 2022

The Asian hub must track the Fed’s rate hikes to preserve its currency peg, but commercial lenders can’t follow so quickly. That reflects China’s weak growth and long term, the awkwardness of the 39-year-old system. Near term, it’s a profit drag for HSBC and Standard Chartered.

India’s crisis buffers are part optical illusion

4 Jul 2022

New Delhi is loosening purse strings to cushion imported inflation as the central bank hikes rates. Rising trade and fiscal deficits put economic recovery at risk, but there’s no good alternative. In that context, throwing precious reserves at a plunging rupee could be rash.

Ukraine needs grants more than long-term loans

22 Jun 2022

EU leaders are debating ways to help Kyiv finance its $5 bln monthly budget deficit from the Russian invasion. So far, it has met all its financial obligations. But Ukraine’s allies shouldn’t add to its debt burden. Better that they borrow in order to help Kyiv out with grants.