The Wall Street Journal’s Daily Report on Global Central Banks for Friday, April 10, 2015:
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Central bankers guard their independence fiercely and like to think themselves above the rough and tumble of the political fray. That doesn’t mean they can ignore what’s happening in the corridors of power.
Take the U.K., where Britain’s political parties are heading into the final stretch of campaigning before national elections May 7. The result could have big implications for the U.K.’s economic prospects and by extension the outlook for central-bank policy.
This year’s poll is one of the hardest to call for years, and seems unlikely to produce a clear winner—an outcome that would be an oddity in Britain even after five years of coalition government. A lengthy interregnum as the parties try to cobble together a deal risks spooking investors, businesses and consumers more used to quick and decisive polls.
Moreover, even if a new government is swiftly installed, many pundits believe it will prove shakier than the outgoing coalition, raising the specter of fresh instability further down the line. The parties vying for power have differing ideas about how quickly to close the U.K.’s budget deficit. And a strong showing by Prime Minister David Cameron’s Conservative Party would almost certainly mean a referendum on whether the U.K. should stay in the European Union, a vote that would have far-reaching economic and financial consequences.
All of these uncertainties risk slowing growth by denting the U.K.’s appeal as a destination for investment and may sap the confidence of businesses and consumers. Already, in currency markets and elsewhere, investors are waking up to the political risks coalescing in the U.K., as the Journal has documented in numerous articles. Links to three of them are here, here and here.
With the eurozone debt crisis on their doorstep and turmoil in Ukraine and the Middle East, Bank of England officials spent much of the past few years eyeing political developments overseas. Now, as they inch closer to raising interest rates, they will be monitoring events much closer to home.
–By Jason Douglas
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
U.S. Chides Europe, Japan for Overreliance on Monetary Policy. The Obama administration on Thursday chastised Europe and Japan for relying too much on monetary policy to revive economic growth, worried that a failure to use other policy tools could further undermine an already gloomy global outlook. In its semiannual currency report, the U.S. Treasury Department also took China and South Korea to task over currency policies that it says hurt other trading partners including the U.S.
IMF’s Lagarde Calls for More Central Bank Easing. The head of the International Monetary Fund warned Thursday that the era of low interest rates risks fueling asset bubbles around the world. At the same time, Christine Lagarde called for more central bank easing given an even bigger risk: the prospect of a long period of weak global growth.
WSJ Survey: Economists Think Fed Will Wait Until September to Raise Rates. The Federal Reserve will likely start raising short-term interest rates in September, according to most private economists polled in recent days by The Wall Street Journal–a significant shift away from earlier predictions of liftoff in June. Some 65% of the economists in the latest survey expected a September rate increase, while just 18% saw the first move coming in June.
What’s Good for Europe and Japan Is Good for America, Eventually. Aggressive central-bank stimulus efforts overseas should benefit the U.S. economy in the long run, according to most economists surveyed by The Wall Street Journal. Asked about central-bank easing in Europe and Japan, 69% agreed that “efforts to spur growth in those key economies are vital for long-term U.S. growth,” versus 9% who said that “their competitive devaluation will harm U.S. growth.” The rest, 22%, said the net effects on the U.S. would be minimal.
Federal Reserve Finalizes Rule to Ease Small Bank Mergers. The Fed finalized a rule Thursday that will allow more small banks to exceed debt limits when financing mergers and acquisitions, implementing a law Congress passed in December. Congress directed the Fed to raise the asset-size threshold for community bank holding companies subject to regulatory capital rules to $1 billion from the current threshold of $500 million in total assets.
Senate Seen Waiting for Obama Until Fed Nominee Hearing Called: Sources — Reuters. The Senate Banking Committee is expected to wait to hold a hearing for the nomination of a community banker to the Fed’s board of governors until the White House moves to fill the other open seat on the panel, according to people familiar with the matter. Waiting gives committee Chairman Richard Shelby (R., Ala.) more time and options to put his stamp on the central bank.
Bank of Mexico’s March Rate Decision Unanimous. The Bank of Mexico’s five board members voted unanimously last month to leave interest rates unchanged. Most agreed that while risks to growth had increased, inflation was likely to remain under control and end the year below the central bank’s target, minutes to the meeting showed Thursday. The central bank left its overnight lending rate target at 3% last month, and was seen by a number of economists as less hawkish than expected, given concerns about the impact that an eventual U.S. interest-rate increase could have on emerging markets such as Mexico.
Indonesia Takes Steps to Stem Flight of Foreign Cash. Indonesia will start offering foreign investors a lower tax bill if they reinvest profits here, a measure that could stem capital flight as the U.S. prepares to raise interest rates and buffer the economy from “uncomfortable” rupiah weakness, the finance minister says.
Norway to Appoint Extra Central Banker to Oversee Oil Fund. Norway’s minority government on Friday proposed to appoint an extra deputy governor at its central bank, in part to boost its competence and capacity on capital management.
Serbia’s Central Bank Cuts Policy Rate. The National Bank of Serbia on Thursday cut its policy rate to 7% from 7.5%. “Apart from low inflation, continued monetary easing was motivated also by a further decline in inflation expectations, which have lingered within the target band for over a year now, and persisting disinflationary pressures stemming from low aggregate demand,” the central bank said in a statement.
After Foreclosures, Home Buyers Are Back. More than five million American families lost their homes to foreclosure between 2007 — the year when the crisis kicked up — through the end of last year. Foreclosures and most negative credit events stay on credit reports for up to seven years. For those who lost their homes in the early years of the crisis, credit scores are improving as the black marks drop away, improving their ability to borrow again. This could have widespread implications for the U.S. economy, including a boost in demand for mortgages in the coming years.
-8 a.m. EDT: Richmond Fed’s Lacker speaks in Sarasota, Fla.
-12:20 p.m. EDT: Minneapolis Fed’s Kocherlakota speaks in Bloomington, Minn.
Plunging Oil Prices: A Boost for the U.S. Economy, a Jolt for Texas. “Opinions differ about the relative roles of supply, demand and other factors in the oil price drop. … We believe the major factor behind the recent price decline is a shift in supply,” Anthony Murphy, Michael Plante and Mine Yücel wrote in an Economic Letter from the Dallas Fed.
Two ways to fix the Fed that everyone can agree on. Howard Gold writes for MarketWatch: “The Fed is far more transparent than it was under the imperious Paul Volcker, but it could be more accountable to Congress and the American people. And two simple reforms would help. The first is a two-term limit for Fed chairpersons. The second involves changes in the pivotal Federal Reserve Bank of New York. In particular, I think the head of the New York Fed should be named by the president and confirmed by the Senate.”
Are China’s Foreign Exchange Reserves Really Falling? “In a recent blog post, former Fed Chair Ben Bernanke argued that a ‘global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging economies and oil producers like Saudi Arabia, was a major reason for low global interest rates.’ If this is so, then Chinese reserve sales can be expected to push up global rates,” Benn Steil and Dinah Walker write on the Council on Foreign Relations’ Geo-Graphics blog. “But is China actually selling reserves? … Once we strip out currency fluctuation effects – that is, the steep recent rise in the dollar – Chinese FX reserves actually increased mildly, rather than decreased, between last June and December.”
Draghi’s Dashboard Sends Mixed Signals. The Institute of International Finance says its “simple but intuitive” visual tool for tracking the success of the European Central Bank’s easing policies in returning inflation to its medium-term target displays “both good and bad news” for Mario Draghi as the governing council prepares for its April 15 policy meeting.
–The number of Americans seeking first-time unemployment benefits rose last week but remained at historically low levels that are consistent with job growth. The four-week moving average for claims was at the lowest level since June 2000.
–Greece met the Thursday deadline for repaying part of its loan from the International Monetary Fund, as the country’s cash reserves continue to dry up. The installment was worth some €460 million ($494 million).
–The Central Reserve Bank of Peru on Thursday left its reference interest rate unchanged at 3.25% for a third consecutive month. The central bank said in a statement that its decision took into account projections for inflation to converge towards 2% in 2015 or 2016. The central bank aims to keep the annual inflation rate between 1% and 3%.
–Happy 199th birthday to the Second Bank of the United States, one of the early U.S. experiments with central banking. It was signed into law on April 10, 1816, and its charter was allowed to expire in 1836.
–China said it reached an agreement on a 30 billion yuan ($4.8 billion) currency swap with South Africa, in its latest effort to boost the international use of the Chinese currency — Dow Jones Newswires.
–The Hong Kong Monetary Authority Friday sold HK$6.2 billion (US$800 million) to defend the Hong Kong dollar’s peg to the U.S. dollar. The intervention was triggered by the U.S. dollar hitting HK$7.7500, the strong side of the Hong Kong dollar’s trading band – Dow Jones Newswires.
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