Financial Regulatory Forum

BREAKINGVIEWS – Markets right to take Fed move badly

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –


By Edward Hadas

LONDON, Feb 19 (Reuters Breakingviews) – The Federal Reserve deserves some sympathy. The U.S. central bank did everything it could to stage-manage its minimal tightening moves, announced late on Feb. 18. But markets reacted as if to serious bad news.

The changes really are small. The main one was to increase the Fed’s discount rate, which is not currently crucial to the financial system, by a token quarter of a percentage point.

That widens the spread between the policy interest rate, currently zero, and the discount rate, which is used for emergency lending to banks, to half a percentage point. Before the crisis, the gap was a full percentage point.

The Fed tried to keep markets calm. It had hinted the move was coming and the press release announcing the changes started by explaining that they were a response to the “continued improvement in financial market conditions”. To hammer the point home, the Fed added that the moves “do not signal any change in the outlook for the economy or for monetary policy”.

BoE’s King says far too soon to say easing program is finished

Options open

Options open

By Sumeet Desai and Matt Falloon

LONDON, Feb 10 (Reuters) – The Bank of England may have to pump more money into Britain’s fragile economy, Governor Mervyn King said on Wednesday after the central bank forecast inflation would stand well below target in two years.

Presenting the BoE’s quarterly Inflation Report, King said recovery from the worst recession since World War Two would be slow with output below pre-crisis levels for some time to come.

And that gloomy outlook did not even take into account the likelihood of fiscal policy being tightened hard after an election expected on May 6.

Bernanke lays out vision for Fed monetary exit

Eyes on the punch bowl

Eyes on the punch bowl

By Mark Felsenthal

WASHINGTON, Feb 10 (Reuters) – Federal Reserve Chairman Ben Bernanke on Wednesday detailed how the U.S. central bank will begin to wean the economy off its extraordinary stimulus, even as he stressed it was not yet time to do so.

Bernanke said the Fed would likely begin tightening monetary policy by removing cash from the financial system before it turns to raise benchmark short-term interest rates.

In his most comprehensive description to date of how the Fed aims to dismantle its extensive emergency economic supports, he also said the central bank could soon raise the discount rate it charges banks for emergency loans, but stressed that would not be akin to a tightening in monetary policy.

EXCLUSIVE – China tells banks to ensure loans are used properly

SHANGHAI, Feb 1 (Reuters) – China’s banking regulator has ordered lenders to conduct checks on whether any of their loans have illegally gone into the stock or property markets, a banking source told Reuters on Monday, the latest step in a clampdown on excessive lending and rising asset prices.

Credit found used for improper purposes must be withdrawn within a certain period of time, said the source, who had seen the relevant notice from the regulator. He did not elaborate on the timeframe.

The order from the China Banking Regulatory Commission (CBRC) marks further efforts by Beijing to rein in rampant lending and ensure that credit is being used to generate genuine economic activity and not simply to fuel speculation in stocks and property.

China tightening worries spook investors

By Victoria Bi and Karen Yeung

SHANGHAI, Jan 26 (Reuters) – Fears of more Chinese policy tightening spooked global markets on Tuesday after Beijing ordered some banks to comply immediately with a planned increase in reserves and a report suggested earlier attempts at curbing lending had failed.

The developments prompted concern that the central bank would get more aggressive about reining in credit to fend off inflation and asset bubbles, potentially dragging on growth in the world’s third-largest economy.

China implemented a planned increase in required reserves for some banks on Tuesday, sources said, sparking heavy selling of Asian stocks that underscored how sensitive global investors are becoming to Beijing’s tightening of monetary policy.

BREAKINGVIEWS-China’s tightening still embryonic

– The author is a Reuters Breakingviews columnist. The opinions expressed are her own –

By Wei Gu

HONG KONG, Jan 20 (Reuters Breakingviews) – The world is nervous about China putting the brakes on its bubbling financial system. Beijing has this week ordered some banks to slow their lending. Markets did not take it well. But as tightening goes, the moves are pretty limited.

Some 1 trillion yuan ($161 billion) of new loans were already advanced during the first half of January, compared with 1.6 trillion yuan for the first month of 2009. That is well above the pace that the authorities’ 2010 loan limit of 7.5

Vietnam cuts foreign exchange compulsory reserves

HANOI, Jan 18 (Reuters) – Vietnam’s central bank said on Monday it would cut the compulsory reserves banks must keep on non-term foreign currency deposits and on those with terms of up to 12 months to 4 percent from 7 percent.

A central bank statement also said the compulsory reserves on foreign currency deposits with terms longer than 12 months would be cut to 2 percent from 3 percent.

The changes take effect on Feb. 1, the State Bank of Vietnam said.

The lower reserve requirements, the first sign of monetary easing this year by Vietnam’s central bank, means banks will have more dollars to put into circulation since they will have to park smaller amounts in accounts at the central bank.

U.S. Fed proposes creation of new exit tool

By Pedro Nicolaci da Costa

WASHINGTON, Dec 28 (Reuters) – The U.S. Federal Reserve on Monday proposed the creation of a new mechanism it could use to withdraw money from the banking system when the time comes to tighten monetary policy.

The mechanism, known as a term deposit facility, would allow financial institutions to earn interest on loans of longer maturities to the central bank. The Fed already pays interest on banks’ overnight reserves.

Rates on such loans could be determined at auction or via a specified formula, the Fed said. Their length would not exceed one year, but would most likely range from one to six months.

China hints at resumption of yuan appreciation

By Zhou Xin and Jason Subler
BEIJING, Nov 11 (Reuters) – China sent its clearest signal yet that it was ready to allow yuan appreciation after an 18-month hiatus, saying on Wednesday it would consider major currencies, not just the dollar, in guiding the exchange rate.

Bernanke sees tighter policies as economy heals

By Mark Felsenthal
WASHINGTON, Oct 8 (Reuters) – The U.S. Federal Reserve must continue measures to prop up the economy for an extended period but can’t do so indefinitely for fear of triggering an inflationary surge, Federal Reserve Chairman Ben Bernanke warned on Thursday.