Month: February 2012


Osborne ready to boost IMF funds

February 15, 2012

Monetary

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Jan 28, 2012 

Chancellor George Osborne has said he believes “there is a case” for increasing International Monetary Fund resources and again indicated that Britain stands ready to boost its contribution.

He also warned that action to save the eurozone “needs to happen in the next few weeks” and suggested the failure to resolve the Greek debt crisis means the “danger here is that the tail wags the dog”.

Speaking from the World Economic Forum in Davos, Switzerland, Mr Osborne said he would have to “think very hard” about rejecting any request from the IMF if other countries believed there was a “credible case” for ploughing in more money.

“I think it would be a very big step for Britain not to be part of it and I think you have to ask the question whether Britain’s place in the world is to withdraw from these important international institutions,” he said. “We are not in the euro, we don’t want to be in the euro but do we want to be in the IMF? The answer to that question in my mind is yes.”

The comments come as IMF boss Christine Lagarde produced a large handbag at the forum and joked: “I’m here, with my little bag, to actually collect a bit of money.”

Parliament has previously approved around £40 billion in support for the IMF, of which about £30 billion has already been committed. Any new request going beyond the £10 billion “headroom” still available to Mr Osborne would require a fresh vote by MPs.

Mr Osborne added: “We can come on and talk about IMF resources, and I think there is a case for increasing IMF resources, and I think that would also be a way of demonstrating that the world wants to help together solve the world’s problems.”

Praising the “courage” shown by eurozone leaders forced to implement unpopular austerity measures, he warned that “more needs to be done”.

Meanwhile, ahead of Monday’s meeting of EU leaders in Brussels, Prime Minister David Cameron phoned his Spanish counterpart Mariano Rajoy to press for support on action to fuel growth.

A Downing Street spokesman said: “The Prime Minister emphasised the need to focus Monday’s discussions on concrete action that the EU could take to generate growth across Europe, for example on trade and deregulation. Mr Rajoy agreed that they should focus on restoring competitiveness.”

Copyright © 2012 The Press Association. All rights reserved.


Brussels takes control of taxation and spending in eurozone countries

February 9, 2012

Monetary

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Christine Lagarde said: In addition to having a monetary zone, the eurozone needs to develop this fiscal consolidation compact that is currently under work and that we hope will be validated on Monday at the leaders summit.Photo: AP Photo/Michel Euler


Central Bank Outlines Monetary Policies, Pledges Incentives for Banks

February 8, 2012

Monetary

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Central Bank Outlines Monetary Policies, Pledges Incentives for Banks

Khartoum – In the seminar entitled Monetary Policies in the 2012 Budget organized by Development Studies Institute in conjunction with The Multi-Donor Trust Fund held at Sharjah Hall Tuesday, Central Bank of Sudan (CBoS) Governor, Dr. Mohammed Khair Al Zubair, has said banks statute reserve has been raised to 13 percent and that official profit margin this year stood at 12 percent.
The central banks chief added CBoS will work to build banks capabilities so that they can adjust themselves to microfinance polices. They are not at the present, he said.
He added, CBoS will appoint and train 1,000 graduates at banks, pay their salaries for two years within the framework of activating microfinance.
Banks are required to allocate 12 percent of their portfolios for microfinance, he said.
The central banks governor added that free foreign exchange dealings will continue and stressed that CBoS directives should be complied with, and disbursements rationalized.
He acknowledge the difficulty of reaching a stable rate of exchange and said government should strictly comply with CBoSs policies and regulations on borrowing from the banking system within the limit of 15 percent for financing budget deficit temporarily.
The central bank chief criticized weakness of finance ministry control over public funds despite reduction of government expenditure by 25 percent.
The reduction of the number of government corporations and the privatization of public companies is directed at just that aim, he said.
He added the monetary policies of the budget are based on mobilizing national savings through the activation of banking services, simplification of account opening procedures and the dissemination of banking electronic card culture.
The banks are free to open any branches under notification of Central Bank but emphasis should be given to the financing of agricultural and industrial production and banks will get incentives through allocation of some of the central banks foreign currency resources, he said.
In the same context, the Central Banks governor said the Arab Fund for Agricultural and Industrial Development (AFAID) has approved a $100 loan for the Industrial Bank.
On the other hand, CBoSs governor said a draft law is being prepared for changing CBoSs share in the Industrial Bank capital to 75 percent and in the ministry of agriculture to 25 percent and not the other way round as the case now.
The CBoSs governor expected that oil production will increase to 65,000 bpd during 2012 with revenue of $ 2.4 billion by end of year.
Sudan could be an oil exporting country again by the end of the three- year program, he said.
As regards gold, CBoSs governor said 24 tons of the yellow metal that worth $ 1.1 billion have been exported, expecting that the quantity of gold to be mineralized would reach 50 tons worth $ 2.5 billion.
The CBoSs governor added CBoS will continue its policy of buying gold from traditional mineralizers but in the same time government will continue its policy of encouraging investment companies. He said a gold refinery worth Euro 2 million will be constructed.

By Haffiya Elyas, 28/01/2012


Ron Paul’s Fed Talk Gets Some Talking Monetary Policy Change

February 6, 2012

Monetary

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Presidential candidate Ron Paul has more than a few people talking about boring monetary policy at the Federal Reserve these days. And its not just on conspiracy talk radio, either. The Wall Street Journal ran an op-ed by David Malpass on Thursday with Pauls name in the headline, praising the Texas congressman for making Fed monetary policy a topic in the political campaign. Apparently, Malpass has not been watching much of the debates because the only person really talking about monetary policy is Ron Paul.

Nevertheless, contrary to what some Paul supporters have been saying all along, the good doctor does get covered in the mainstream press. He even gets kudos at times from the WSJ, which of course is no small accomplishment. On the matter of the Fed, Paul is seen as the expert.

Malpass piece ultimately highlighted the perils of further quantitative easing. But his logic suggests that the Fed should continue using interest rates as its operating lever to control the dollar, says Paul Hoffmeister, an economist at independent research firm Bretton Woods Research.

To be clear, interest-rate targeting does not control the money supply. The purpose of targeting interest rates is to accelerate or decelerate economic growth to control the price level, which is entirely a demand-side supposition. Should Republicans win the House, Senate and White House, then this distinction will be critical should they pursue substantive monetary reform. Its best that Congress eliminate any discretion at the Fed and mandate that it follows a gold price rule.

Wow, thats another market watcher giving accolades to Ron Paul and his take on the Federal Reserve.

The Fed is going to keep interest rates low for at least another two years in an effort to keep this economy sputtering along. More quant easing is likely in the form of bond buybacks and other non-security instruments that blew a big hole in the market in 2008. Further inflationary pressures from are stagflating the global economy, Hoffmeister says.

In turn, this is creating a terrible growth outlook and creating a better than 50% probability that the Fed and/or European Central Bank will monetize debt and inflate even more this year. The Fed will blame the weak growth environment, and the European Central Bank will blame southern Europe.

Hoffmeister, a student of Jude Wanniski, an 80s supply-side champion and former economic adviser to Ronald Reagan, agrees that the dollar should be somehow pegged to something more tangible, like gold. But thats not in the Feds interest at all. Ron Pauls made headlines in the summer when he asked Ben Bernanke about his thoughts on gold, and whether it could be used to back the dollar, and Bernanke told him that gold is not a currency, never will be a currency, it is just a precious metal. It is the Fed that makes monetary policy, so that is the last word on the matter.

Then I asked Hoffmeister about this and he said that Article 1, Section 8 of the Constitution states that Congress has the power to coin money and regulate the value of it. As a result, the President can work with Congress to rescind the Federal Reserves current dual mandate to maintain stable prices and low unemployment, and to create a mandate that the Federal Reserve target a stable dollar value in relation to gold. This new mandate would achieve stable prices and low unemployment far more efficiently and effectively than the current mandate and it would eliminate the discretion of monetary policymakers to tinker with the economy.

So whats the tradeable takeaway from all this? Gold is on the rise. Bretton Woods told clients to get into gold last week when it was at $1,650 an ounce. The Feds zero rate policy and this weeks news that Chairman Bernanke is seriously considering another round of quantitative easing, coupled with the potential instability in the Middle East, means that gold could easily reach $2000 in 2012.

Lastly, note to the WSJ. Your firewall does not work.


Monetary Policy Week in Review – 28 January 2012

February 5, 2012

Monetary

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The past week in monetary policy saw 2 central banks cutting interest rates (Israel -25bps to 2.50%, and Thailand -25bps to 3.00%), and 1 bank cutting its reserve ratio (India cut CRR 50bps to 5.50%). Meanwhile 7 central banks held rates unchanged (Japan 0.10%, India 8.50%, Hungary 7.00%, Turkey 5.75%, New Zealand 2.50%, USA 0-0.25%, and Hong Kong 0.50%). The week also featured the US Federal Reserve announcing an inflation target of 2 percent and releasing its inaugural economic forecasts as part of its efforts to improvetransparency.


The new monetary policy

February 3, 2012

Monetary

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The essence of the just announced half-yearly monetary policy is restraint— restraint in lending to both private and public sectors and non-essential consumption. The central bank wants all concerned to exercise moderation in spending because the countrys macro-economy is now passing through a difficult time. When the Bank had unveiled the immediate past six-monthly monetary policy, one particular factor—high inflation— was at the top of the list of macro-economic irritants. There were other irritating factors but not like that of inflation. But between last July and December, while inflation continued to be as stubborn as before, two more factors— balance of payments situation and liquidity shortage in the banking sector— emerged as major worries for the policymakers.

Thus, the current monetary policy along with the goal of reining in runaway inflation has two core objectives—easing external sector pressure and ensuring flow of adequate volume of credit to the private sector for investment in productive areas of the economy. Meeting those core objectives under the prevailing circumstances might prove a daunting task for the central bank. The non-expansionary monetary policy being pursued by the Bank for quite sometime could not achieve the desired result for the government preferred to put in place expansionary fiscal measures to meet its own resource gap. The government borrowing from the banking system grew by 62 per cent between last July-December period while growth of credit to the private sector during the period declined to 18 per cent from nearly 26 per cent in the fiscal 2010-11. The new monetary policy now intends to bring down the public sector borrowing to 31 per cent and private sector credit growth to 16 per cent.

It is difficult to make predictions about the borrowing by the government that would require additional funds to meet the ballooning subsidies and speed up implementation of the Annual Development Programme (ADP) for the current fiscal. If the government exercises restraint to keep its budget deficit within projected limit of 5.0 per cent, there could be, theoretically, some improvement in the inflation situation. It is most likely that the growth of credit to the private sector would slow down to the level projected in the new monetary policy because of the liquidity problem facing the banks and the high lending rate. But the impact of the possible credit movement on inflation is likely to be negated by the continuous depreciation of the taka vis-à-vis the US dollar. With all imports becoming costlier because of the depreciation in the value of taka, most commodities are likely to be costlier in the coming months, leading to further rise in inflation.

The central bank intends to ease off external sector pressure. But the factors influencing the external sector health are in many cases beyond its control. The imports are likely to remain subdued with export showing a lacklustre growth during the remaining months of the current monetary policy period and beyond. There is no reason also to expect any major turnaround in remittance inflow and disbursement of external assistance during the period. Overall the situation remains pretty tight as far as all macro-economic indicators are concerned. Whether the new monetary policy would be able to rein in inflation remains open to question but fears are running high that some of its contents have the potential to depress investment and growth.


Europe needs ‘massive monetary easing’: Nouriel Roubini

February 2, 2012

Monetary

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Europe needs massive monetary easing to get out of its debt crisis, otherwise Greece will likely abandon the euro in a year and a half, famous economist Nouriel Roubini told CNBC on Wednesday.


IMF Staff Report Says Turkey Monetary Policy Is ‘Overburdened’

February 1, 2012

Monetary

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IMF Staff Report Says Turkey Monetary Policy Is ‘Overburdened’
January 27, 2012, 5:22 PM EST

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By Sandrine Rastello

Jan. 27 (Bloomberg) — International Monetary Fund staff recommended that Turkey lower its inflation target and said monetary policy is “overburdened” by different objectives.

In an annual assessment of the country’s economic policy dated Nov. 14 and released today, IMF economists said Turkey’s “unconventional monetary policy framework” has a potentially conflicting set of objectives. While the authorities consider the current inflation target of 5 percent “appropriate,” decreasing it would help the country’s competitiveness, IMF staff said.

“Staff advocated a much tighter structural fiscal position and financial policies geared to moderating systemic risk,” IMF staff wrote. That would “allow monetary policy to maintain both inflation and interest rates at levels similar to other emerging markets within a conventional inflation-targeting framework.”

Under Governor Erdem Basci, the central bank has developed a policy mix designed to reduce demand for imported consumer goods through limits on bank lending, while rate cuts weaken the lira. The bank this month maintained the corridor within which it varies interest rates daily and offered banks increased longer-term financing at a higher rate.

The IMF staff report predicted growth for Turkey at 2 percent this year. In a more recent report prepared for Group of 20 officials, who met Jan. 19-20, and released this week, the IMF forecast growth this year of 0.4 percent for Turkey, down from 8.3 percent in 2011.

Turkey dismissed the IMF estimates. The country stands by its forecast of 4 percent growth this year, Deputy Prime Minister Ali Babacan said this week.

–Editors: Gail DeGeorge, Vince Golle

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net;

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