In a surprise move today, the Bank Indonesia cut its overnight reference interest rate 25 basis points to 6.5%. Indonesian stocks ended the day up 2.3% and the rupiah weakened around 0.5% to 8,965. Bank Indonesian Governor Darmin Nasution stated, “If the global economy is slowing, inflationary pressures will be declining….Many countries may shift their policy focus from maintaining low inflation to supporting economic growth.”
Over the last quarter, there have been interest rate cuts by Brazil, Russia and Turkey that have supported Nasution comments, supported economic growth and supported global equity markets. Markets should begin to expect more of … …READ MORE
Tag Archives: monetary policy
Upcoming EM central bank meetings support risk
Breaking the financial Hippocratic Oath
Yesterday, the Federal Open Market Committee met to discuss monetary policy for the United States. For weeks, many strategist/analysts/economists/politicians have questioned the efficacy of the central bank acting to “twist” the yield curve. I’ve written recently (See BU 9.20 and conference calls) that lower interest rates (and job plans) have very little impact due to the balance sheet problem in the country. The transmission mechanism of lower interest rates is broken and not feeding through into the economy. Therefore, any additional action by the Federal Reserve will have little positive impact on the economy and has the downside risk of … …READ MORE
Here's what's up today:
1. China raised reserve requirements effective 11.30 for the 5th time this year. They are tightening to cool a CPI that ran at 4.4% last month. Food plays a large role in their CPI calculation and the population gets agitated when it goes up.
2. As I said in my blog for CNBC yesterday, the Chinese are reacting to inflation and to the Fed’s QE2. Sets up a situation where the Fed pumps money in, the dollars flow to China, China tightens in an attempt to sterilize the effect.
3. Ben Bernanke today called out China on their currency saying … …READ MORE
China is the future of the US
China is the future of the US
After the less than satisfying G20 meetings, the latest newsflow out of China is centered on what to do about inflation and how to counteract QE2. To wit:
• People’s Bank of China’s Prof Wang said, “The growth of prices has accelerated since September mainly because of intensive hot money inflows because of yuan appreciation and new quantitative easing measures by the U.S….It’s an urgent job for the central bank to tighten up liquidity and it needs new policy tools to do so.” Shanghai Securities News.
• China Investment Corporation’s Hong Kong chairman … …READ MORE
UK To Rev Up QE2?….or not:
Today, the Bank of England’s Adam Posen stated that the central bank needs to address persistent slow growth by starting another round of quantitative easing. Here’s his argument: “There remains a significant gap between what the economy could be producing at full employment and what it currently produces….Monetary policy should continue to be aggressive about promoting recovery, and, subject to further debate, I think further easing should be undertaken.” This is the opposite of what Bank of England’s Andrew Sentence just yesterday (raise rates to combat inflation). These opposite views on the outlook for risks to the UK economy generate … …READ MORE
Posted in Front Page Also tagged Bank of England, interest rates, quantitative easing, uncertainty Leave a comment
Five Questions for Ben Bernanke
Over the next two days, Federal Reserve Chairman Ben Bernanke will present his semiannual review of monetary policy to Congress. All of these are central for understanding the central problem of the US economy: lack of job creation.
Here are my five key questions he needs to answer for the markets.
Number one, why did the Fed downgrade their assessment of the economy and what sectors are generating to diminished outlook? This stems from their latest report on the economy that slightly reduced their ranges of growth and raised concerns over a double dip recession.
Number two, why did the … …READ MORE
The Eyes of Congress Are Upon You
Here’s What the Markets Are Going to Focus on Today:
House Budget
FISCAL 2011 BUDGET: TREASURY DEPARTMENT
10 a.m. Feb. 24, 210 Cannon Bldg.
Full Committee Hearing
House Budget Committee (Chairman Spratt, D-S.C.) will hold a hearing on the president’s proposed fiscal 2011 budget for the Treasury Department.
Witnesses Scheduled: Timothy F. Geithner, secretary of the Treasury
House Financial Services
HUMPHREY-HAWKINS MONETARY POLICY REPORT
10 a.m. Feb. 24, 2128 Rayburn Bldg.
House Financial Services Committee (Chairman Frank, D-Mass.) will hold a hearing on the Humphrey-Hawkins Semiannual Monetary Policy Report, current economic conditions, and the outlook for the financial sector and … …READ MORE
Ron Paul Day in the House
As part of the ongoing reconfiguring and reregulating of the American financial system, the House Financial Services Committee today will take up an amendment that seeks to audit Federal Reserve monetary policy. As so many things are backward in Congress, the vote today is actually a vote on a proposal to retain a ban on audits of Fed interest rate decisions. If it is voted down, then the Ron Paul bill to audit monetary policy could see the light of day.
The Paul bill has 300 cosponsors and clearly has struck a nerve in Congress. I’d go back to the … …READ MORE
G20 What You Need To Know
Here are the major points of interest on the G20 as the details leak out on what will be in the communiqué.
1. There will be broad agreement on the need to reign in bankers pay. They will attempt to provide rules to tie compensation to risk. and to tighten/capital requirements.
2. There will be broad agreement on financial regulatory reform with the specific plank of tightening/increasing bank capital requirements.
3. There will be broad agreement to be deliberate on withdrawing stimulus to their economies and to cooperate/coordinate the exits.
4. There will be broad agreement to increase the participation … …READ MORE
