Category: Monetary


BRICS launch new bank and monetary fund

July 26, 2014

Monetary

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Pointed words for Washington

The BRICS agreement on how to fund the new development bank, which will be based in Shanghai, consciously set a counterpoint to the old power structures of the World Bank and International Monetary Fund (IMF). Each of the five BRICS countries will contribute an equal $10 billion share to the NDBs $50 billion capital base, despite big differences in the countries population sizes and economic weights.

At the World Bank, the US has a veto. In the BRICS New Development Bank, all shareholders are equal, said Brazils finance minister Guido Manteiga. He added that the presidency of the NDB will not be the prerogative of a particular continent; instead, it will change every five years, rotating among the BRICS countries. The first president of the NDB is to come from India.

In addition to the new bank, a new monetary fund was also launched at the Fortaleza summit. The five leaders signed a memorandum establishing a Contingent Reserve Arrangement (CRA) – a $100 billion contingency fund, which member states can draw on in financial emergencies when their foreign exchange reserves become dangerously depleted.

The BRICS countries currently have the worlds largest foreign currency reserves, and the new institution offers an opportunity to invest those savings at a profit. China contributed $41 billion to the capital stock; India, Brazil and Russia each paid in $18 billion, and South Africas share is $5 billion.

Competition for the IMF

The CRA is meant to provide an alternative to International Monetary Funds emergency lending. In the CRA, emergency loans of up to 30 percent of a member nations contribution will be decided by a simple majority. Bigger loans will require the consent of all CRA members.


Singapore’s monetary arm proposes rating for all investment products

July 24, 2014

Monetary

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SINGAPORE, July 21 (Xinhua) — The Monetary Authority of Singapore proposed several measures on Monday to boost investor protection, including a requirement for all investment products to rated according to their complexity and risks.

The authority proposed that such ratings be disclosed to potential investors, too.

The public consultation on these measures came as there has been an increase in the number non-conventional products offered to retail investors as alternative investments, the authority said.

Many of these products have features similar to the regulated capital markets products, but are structured in a way that makes them fall outside the coverage of the Securities and Futures Act, it said.

The authority proposed that the current regulatory safeguards available to ordinary investors in capital markets be extended to investors in non-conventional investment products.

Accredited investors, which had typically been differentiated from the retail investors, will be given the option to benefit from the full range of capital markets regulatory safeguards that are applicable for retail investors.

Under the Securities and Futures Act, an Accredited investor is someone whose net personal assets exceed two million Singapore dollars or whose income in the preceding 12 months is not less than 300,000 Singapore dollars, according to the statement.

The public consultation over the proposed changes will take place over a six-week period from July 21 to Sept. 1 this year


Nepse jumps 29 points on monetary policy measures

July 23, 2014

Monetary

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KATHMANDU, JUL 21 –
Nepal Stock Exchange (Nepse) jumped 29.08 points to 1,074.97 points on Sunday, a day after the Nepal Rastra Bank (NRB) unveiled the monetary policy for fiscal year 2014-15. The market closed Along with the surge in the benchmark index, the market turnover also surged to more than Rs 966 million, which stockbrokers claimed record-high single-day turnover.

Indices of almost all the groups posted gains. The insurance group, up 84.04 points, lead the gainers list. It was followed by commercial banks (up 35.87 points). Except for lsquo;others and trading, all other sub-indices posted double-digit gains.

The massive surge in the market comes despite the fact that the monetary policy has talked about tightening margin lending. The monetary policys decision to hike paid-up capital requirement for micro-finance institutions (MFIs) to be established in banked areas, affected the market, said Anjan Raj Paudel, managing director of Thrive Brokerage House.

On Sunday, most of the D class financial institutions, and development banks, posted gains. For of Sundays top-five gainers were microfinance institutions, while one was development bank. Chhimek Laghubitta Bikas Bank, up 10 points, was the biggest gainer. Paudel added good returns offered by microfinance institutions also attracted investors.

Narendra Raj Sijapati, president of Nepal Stockbrokers Association, attributed the rise in the Nepse index

to the monetary policy.

The central bank taking stringent policy regarding the paid-up capital requirement contributed to the rise of the commercial bank sub-index, he said.

The monetary policy has barred BFIs failing to increase their paid-up capital to the required level by mid-July 2014 from expanding branches and distributing cash dividend. A certain limit will be imposed on deposit mobilisation and credit disbursement too, according to the policy. This prevision will encourage such BFIs to issue bonus and rights shares to boost their capital.

NRB said 23 commercial banks, 62 development banks and 40 finance companies have only fulfilled the capital requirement as of mid-July.

Posted on: 2014-07-21 09:02


Monetary Policy Week in Review – Jul 14-18, 2014: Fed debate intensifies, 3 …

July 22, 2014

Monetary

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By CentralBankNews.info
Last week in global monetary policy, three central banks raised policy rates (South Africa, Egypt and Ukraine) while two banks (Turkey and Chile) cut their rates as the debate over the US Federal Reserve’s eventual interest rate rise intensified.
There were three developments surrounding Fed policy that stood last week.
First, the Fed’s statement in its latest Monetary Policy Report that the share prices of social media and biotech firms appeared “substantially stretched.”
Second, a series of news stories with major investors and Wall Street financiers calling for the Fed to start to normalize monetary policy and think about rate rises.
Third, Fed Chair Janet Yellen’s testimony to a Senate committee that included the statement that rates could be raised sooner if the labour market improves more quickly than anticipated.
While Yellen’s reflections on the labor markets and investors’ views of Fed policy are part of the normal evolution of a policy consensus in a democratic society, the Fed’s mention of the share prices of two specific stock sectors was a surprise.
Economists and central bankers have for years debated how monetary policy should react to booms in asset prices and the risk of financial instability, a debate that most recently hit the headlines following the annual report by the Bank for International Settlements (BIS).
The Fed’s statement about the stock prices of social media and biotech firms is thus an example of how central banks initially will react when they perceive that certain assets are inflated.


EAC Monetary Union Requires Political Agreement – Olaka

July 21, 2014

Monetary

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East African states need a working political federation and an integrated financial system for the planned monetary union to succeed, the Kenya Bankers Association yesterday said.

According to the KBA, the East African Community financial sector has not fully responded to the regions integration process while the states differ in fiscal policies.

There will be challenges in a common monetary policy when fiscal policies differ at state level. The sequencing of a successful monetary union should be superseded by competitive financial sector and a fiscal union, which are assured by political federation, chief executive officer, Habil Olaka said.

He advised the EAC to borrow from United States of Americas monetary and fiscal union that has succeeded due to the political federation as opposed to the European Union which has suffered crisis due lack of a common fiscal policy.

The challenges of the Euro Zone during and post the global financial crisis links to banks being separately regulated while monetary policy is handled by the European Central Bank. The EAC should articulate its framework for financial stability clearly, he said.

He spoke yesterday during the financial services conference held by the Institute of Certified Public Accountants of Kenya in Nairobi.

He lauded the progress realized through the removal of trade barriers, saying that it is the financial sector that catalyzes all aspects of integration.

He urged the EAC Monetary Affairs Committee to ensure financial sector competitiveness in the wake of international financial players entry in to the region.

International banks are expanding operations across the region due to the integration initiative and the arising opportunities. Their entry has brought implications to the local banks through uncompetitive practices and there is need for regulators to ensure true convergence, he said.


International Monetary Fund Congratulates BRICS for New Fund, Offers Help

July 21, 2014

Monetary

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Brasilia: The International Monetary Fund on Wednesday congratulated the five BRICS countries for creating a new reserves fund that intends to challenge Western dominance in the global lender.

The IMFs managing director, Christine Lagarde, said the lender would like to work with the BRICS in the new fund, which pools together $100 billion in reserves from Brazil, Russia, India, China and South Africa.

BRICS leaders on Tuesday launched the fund and a joint bank of the same size in a bold step to press for a bigger say in the global financial order centered on the IMF and the World Bank.

The fund, known as Contingent Reserve Arrangement, aims to help BRICS countries with balance of payment difficulties.

IMF staff would be delighted to work with the BRICS team dedicated to this project with a view to reinforcing the cooperation among all parts of the international safety net, Lagarde said in a statement.

China, holder of the worlds largest foreign exchange reserves, will contribute the bulk of the reserves pool, or $41 billion. Brazil, India and Russia will chip in $18 billion each and South Africa $5 billion.


ECB monthly report says monetary stance will continue to ease in coming months

July 21, 2014

Monetary

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Author: Mike Paterson

Mike Paterson has more than 30 years of experience trading FX including as a senior trader with UBS and Credit Suisse. He was also head of FX at the State Bank of Victoria. With sizeable daily trading volumes Mike carved out a name in the market combining professional integrity with a cynical grasp of seizing market opportunity. Since leaving the City, Mike has been working as an independent consultant and trading along with presenting seminars and writing for a number of publications. Mike lives in Kent and supports Southend United FC.


More on Class and Monetary Policy

July 16, 2014

Monetary

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A bit more on the question of whose interests are served by hard-money ideology: One way to identify what you might call the creditor class is to look at who derives a lot of income from interest. The Piketty-Saez tables calculate interest income as a share of total income for various percentiles of the income distribution; I looked at the numbers from 2007, when the crisis had not yet struck and returns were normal. It looks like this:


Expectation: No change in monetary policy rate, predict analysts

July 14, 2014

Monetary

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KARACHI:Majority of analysts polled by The Express Tribune expect the State Bank of Pakistan (SBP) to keep the discount rate unchanged in the next monetary policy announcement due next week.

The monetary policy rate, which is announced every two months, is the interest rate at which commercial banks are allowed to borrow from the central bank’s discount window.

The central bank uses this tool to control inflation by changing the level of money supply in the economy. Currently, the monetary policy rate stands at 10%.

“We do not expect the central bank to change the monetary policy rate in the upcoming policy announcement,” Foundation Securities Research Analyst Mohammad Fawad Khan told The Express Tribune on Wednesday.

Saad Khan of Arif Habib Limited also expects the discount rate to stay at 10% in the next announcement. He bases his opinion on the fact that the real interest rate – which is the difference between inflation and the key interest rate – is ‘well above the SBP comfort level’.

“We base this on two factors: one, normalising inflation and stable outlook in 2014-15, and two, sustainable external accounts outlook,” he noted. The only factor that may dampen the expectation of the status quo on the monetary policy front going forward, Khan says, is any substantial rise in energy prices resulting in an increased general price level in the economy.

Citing the latest inflation figures that reflect a real interest rate of 178 basis points for June, and 138 basis points for 2013-14, Elixir Securities also projects the discount rate to remain flat at 10% for the next two months.

Last month, the Consumer Price Index (CPI) clocked up at 8.2% on a year-on-year basis, which was below the market expectation of 8.6%. The reason for the less-than-expected CPI for June, according to Elixir Securities, was that the price increase pertaining to food and non-alcoholic beverages groups remained under control. Similarly, core inflation data was also encouraging, as non-food, non-energy inflation remained 8.7%, up 40 basis points from the preceding month.

According to KASB Securities, the central bank will likely wait for a sustained decline in CPI, which has been volatile in recent months. “We expect no change in the discount rate… Real interest rates have remained in the positive zone since December 2013 in the range of 0.8%-2.1% with no sustained trend,” it said.

Earlier, the SBP was going to announce the next monetary policy on July 12. But a statement issued by the central bank on Wednesday said the policy will now be announced on July 19.

Published in The Express Tribune, July 10th, 2014.

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Class and Monetary Policy

July 13, 2014

Monetary

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Ive been writing a lot lately about the continuing influence of inflation hysterics despite their awesome wrongness over the past five-plus years. One question that naturally arises is whose interests are served by this unjustified influence.

You dont want to be too crude about it. I dont think there are a lot of clear-headed hard-money types who secretly admit to themselves that their models have failed and that the policies they advocate could mire the economy in a permanent slump, but nonetheless say what will support their class interests. Instead, interests feed ideology, and the ideologues may then be sorta-kinda sincere in their beliefs.

Still, it is worth asking who benefits from low inflation or deflation, and from higher interest rates. And the answer, basically, is rich old men.

On the rich part: Using SIPP data, we can look at the comparison between financial assets and debt by household net worth: