Monetary Policy

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.

Inflation raises stakes in Hungary’s EU war

17 Jun 2022

PM Viktor Orbán’s tight political grip largely kept investors happy. Yet inflation fears are now pushing the forint to record lows. Unlocking 7 bln euros in EU funds could restore the autocrat’s power-and-prosperity sweet spot. That makes his hostility to the bloc more costly.

Fed drives a stake into own rate-setting newthink

15 Jun 2022

A 75-basis-point rate hike, the biggest since 1994, was a rational response to surging prices. It’s also the death knell for Federal Reserve boss Jay Powell’s focus on making monetary policy more flexible and inclusive. Bold innovation is best left until prices have settled down.

Crashing yen disturbs Haruhiko Kuroda’s zen

15 Jun 2022

Japan’s currency is at its weakest against the U.S. dollar since 1998 and bond traders are revolting. It disrupts the central bank governor’s meditations on the mystical balance between growth, public debt and near-zero rates. Stagflation risk suggests a new mantra is warranted.

ECB caught in a rate quagmire of its own making

20 May 2022

The European Central Bank may raise rates in July but is divided on how high it should go. By then, weakening growth will make it harder for President Christine Lagarde to end the eight-year era of negative rates. Moving earlier to curb inflation would have avoided the dilemma.

Inflation revives spectre of the long bear market

19 May 2022

The S&P 500 Index has fallen almost 20% from its early January peak. Such downturns have become shorter and less frequent due to support from the Federal Reserve, says Edward Chancellor. But rising prices have removed the safety net. The next selloff could inflict more damage.

Chelsea’s generous buyer, U.S. inflation pain

12 May 2022

Roman Abramovich is selling the soccer team to a group led by LA Dodgers co-owner Todd Boehly for $3 bln. In this Viewsroom podcast, Breakingviews columnists discuss the chunky valuation and the owner’s spending plans. Also, high prices are hitting the rich as well as the poor.

Capital Calls: Turkey, Nintendo/Sony, India IPO

10 May 2022

Concise views on global finance: President Erdogan makes another ham-fisted monetary intervention; the Switch maker weathers supply chain ructions better than its larger rival; New Delhi needs to be even more generous in its landmark listing of Life Insurance Corp of India.

Zimbabwe borrows from bank of bad ideas, again

10 May 2022

With inflation at 96%, Harare plans to stop further currency slumps by a ban on bank lending. That stymies a sly trade where insiders play the spread between official and black-market FX rates. But as with prior moves it’s a blunt tool that erodes rather than builds confidence.

Andrew Bailey unwillingly channels Paul Volcker

5 May 2022

The Bank of England boss raised rates to 1% to curb high inflation and may hike further despite the risk of recession. It’s old-school policymaking as practised by the former Fed chief. The more central banks behave this way, the more likely and severe a global downturn will be.

Explaining the Fed’s tolerance for high inflation

21 Apr 2022

U.S. prices are rising by more than 8% a year, yet the central bank only just started raising interest rates. One possibility is that it fears a financial crisis, Edward Chancellor argues. Another is that inflation is the least painful way to resolve deep-seated social conflicts.

Draghi’s bond-buying triumph lacks obvious sequel

13 Apr 2022

The ECB’s plans to tighten monetary policy and the Ukraine war revive fears that weak euro zone members’ borrowing costs will soar. Though the former central bank boss tamed debt spreads in 2012, a repeat is tricky. Besides, governments that struggle can use tools Draghi devised.

Russia takes big step towards default

7 Apr 2022

Russia will pay foreign bondholders roubles instead of dollars. A default looks likely after a 30-day grace period. Many investors, stuck with a currency they can’t use and facing an uncertain legal battle for any recovery, may prefer to take losses today and sell.