Rescued banks engaged in riskier lending - BIS paper

    Banks that received public funds during the 2008 financial crises were involved in riskier lending than banks that did not need a government bailout, according to a working paper published by the Bank for International Settlements (BIS).

    The paper, by economists Michael Brei and Blaise Gadanecz, examined the loan risk of 87 banks - 40 of which received public funds – and found that before the crisis, the rescued institutions had a significantly higher share of leveraged, and thus riskier, loans  in their portfolios of syndicated loan signings than their non-rescued peers.

     While the finding is hardly surprising, the authors found evidence that those banks that were rescued took on the risk mainly in their home markets,  “possibly reflecting their expectation that rescues are more likely to occur at home, where they may count as more systemic or wield more market power than abroad,” the paper said.

Central Bank News Link List - July 31, 2012

    Here's today's Central Bank News link list, click through if you missed the previous link list. The list is updated during the day with the latest news about central banks so readers don't miss any important developments.

• Hefty Swiss central bank profit may quiet franc doubters (Reuters)
• Some at Fed are urging pre-emptive stimulus (NYT)
• Goldman's O'Neill says China's central bank to cut rates further (Bloomberg) 
• Bank of Russia asked finance ministry to help boost liquidity (WSJ)
• Colombia central bank forecasts 2013 GDP growth of 2%-5% (Bloomberg)
• Central bank (Philippine) expected to slash key rates by another 25 bps (bworldonline)
• Central banks's unorthodox actions are cutting lending (Bloomberg)
• www.CentralBankNews.info

India holds rate steady, cuts SLR to help credit flow

    The Reserve Bank of India kept its benchmark repurchase rate steady at 8.0 percent, as expected, to rein in inflation expectations but trimmed the statutory liquidity ratio (SLR) by 100 basis points to 23.0 percent to encourage banks to lend more money to productive sectors of the economy.

    In its first quarter review of monetary policy, India's central bank stressed that its main task was to contain inflation to safeguard medium-term growth and a reduction in interest rates would merely stoke inflationary expectations without necessarily stimulating growth.

    "While monetary actions over the past two years may have contributed to the growth slowdown - an unavoidable consequence - several other factors have played a significant role," the RBI said.

    "In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," the bank added.

    The SLR dictates the amount of deposits that banks must hold in government bonds.

Central Bank News Link List - July 30, 2012

    Here's today's Central Bank News link list, click through if you missed the previous link list. The list is updated during the day with the latest news about central banks so readers don't miss any important developments.

• Juncker:Euro zone leaders, ECB to act on euro - paper (Reuters)
• Draghi on offensive as game changer sought in crises (Bloomberg)
• Euro zone crises heads for September crunch (Reuters)
• Fed weighs cutting interest on banks' reserves after ECB move (Bloomberg)
• RBI says India inflation risks significant even as growth slows (Bloomberg)
• Monetary policy role in EU debt crises limited: Zoellick (CNBC)
• ECB must 'step up to the plate': Robert Mundell (CNBC)
• www.CentralBankNews.info

Monetary Policy Week in Review - July 28, 2012

     The past week in monetary policy saw interest rate decisions by nine central banks around the world, with two large emerging market central banks cutting rates, and the remaining seven banks keeping rates unchanged.

    Both the Colombian and the Philippine central banks that cut rates cited falling inflation that allowed them room to cut rates and help buffer the economy against lower global growth.

     Of note was the statement by the Reserve Bank of New Zealand, which struck a much-less pessimistic view of the euro area debt crises than most other observers, saying there was only a limited risk that conditions there would deteriorate significantly.

    LAST WEEK’S MONETARY POLICY DECISIONS:

  

COUNTRY	NEW RATE	OLD RATE	RATE 1 YR AGO
ISRAEL	2.25%	2.25%	3.25%
HUNGARY	7.00%	7.00%	6.00%
NIGERIA	12.00%	12.00%	8.75%
THAILAND	3.00%	3.00%	3.25%
NEW ZEALAND	2.50%	2.50%	2.50%
PHILIPPINES	3.75%	4.00%	4.50%
COLOMBIA	5.00%	5.25%	4.50%
EGYPT	9.25%	9.25%	8.50%
ZAMBIA	9.00%	9.00%	N/A

   

    NEXT WEEK:

    Looking at the central bank calendar for next week, there is intense speculation that the European Central Bank (ECB) will follow up with measures to ease strains in sovereign bond markets following President Mario Draghi’s statement that the ECB would “do whatever it takes to preserve the euro,” within its mandate.

    Speculation about some form of coordinated central bank action - similar to the November 30, 2011 coordinated expansion in U.S. dollar swap arrangements to ease liquidity strains in markets – was stoked by news that U.S. Treasury Secretary Timothy Geitner would meet top European leaders, including Draghi, on Monday.

    A few days after that coordinated action, the ECB on December 8 launched its two longer-term refinancing operations (LTROs) that quickly eased strains in European debt markets.

    The U.S. Federal Reserve is also expected to expand its stimulus programme while neither the Bank of England or the Reserve Bank of India are expected to cut rates.

   

COUNTRY	MEETING DATE	OLD RATE	RATE 1 YR AGO
INDIA	31-Jul	8.00%	8.00%
UNITED STATES	1-Aug	0.25%	0.25%
UNITED KINGDOM	2-Aug	0.50%	0.50%
EURO ZONE	2-Aug	0.50%	1.50%
CZECH REPUBLIC	2-Aug	0.50%	0.75%
ROMANIA	2-Aug	5.25%	6.25%

    www.CentralBankNews.info

Colombia cuts interest rate by 25 bps to 5.0%

    Colombia's central bank cut its key interest rates by 25 basis point to 5.0 percent due to slowing growth and declining inflation, with two board members suggesting an even-larger reduction. The cut was expected by some, but not all economists.
    Banco de la Republica Colombia said global economic growth was weakening more than expected  and excess global capacity and lower commodity prices were moderating inflationary pressures.
    The weaker growth was restricting the growth of Colombia's economy and this was expected to continue for the next few quarters, the bank said  in a statement.
    "According to the evaluation of the current balance of risks, all members of the Board considered it appropriate to reduce the intervention interest rate. Some members suggested further reductions to the finally adopted," the bank said.

Central Bank News Link List - July 27, 2012

    Here's today's Central Bank News link list, click through if you missed the previous link list. The list is updated during the day with the latest news about central banks so readers don't miss any important developments.

• Draghi boxes himself into a corner with bond signal (Bloomberg)
• Colombia's split central bank to weigh first rate cut since 2010 (Bloomberg)
• Zambia c. bank leaves benchmark rate steady at 9% (Reuters)
• Exclusive: ECB may take losses in second Greek debt restructuring (Reuters)
• Exclusive: Spain discussed 300 billion euro bailout with Germany:source (Reuters)
• A Fed governor wants tougher rules (NYT)
• Further S. Africa interest rate cuts not "automatic"-Marcus (Reuters)
• Mexican peso has room to appreciate-Central Bank Chief (WSJ)
• Gulf Arabs shouldn't delay single currency-Qatar central bank official (Reuters)
• Inflation doesn't worry the central bank (Herald Sun) (Australia)
• Bank Indonesia turns to Chinese bonds for diversity (Jakarta Globe)
• Spanish bank's ex-leader defends his record there (NYT)
• www.CentralBankNews.info

Egypt keeps interest rate steady at 9.25%

    Egypt’s central bank kept its benchmark overnight deposit rate unchanged at 9.25 percent, as expected, but said it would not hesitate to adjust rates in light of the downside risks posed to the economy from the challenges facing the euro area.
    The bank said in a statement that headline inflation eased by 0.55 percent in June from the previous month for an annual rate of 7.26 percent, down from 8.3 percent in May, while the core inflation also eased to 7.04 percent, driven by lower food prices.
    It cautioned, however, that the re-emergence of local supply bottlenecks posed upside risks to the inflation outlook.

Central Bank News Link List - July 26, 2012

    Here's today's Central Bank News link list, click through if you missed the previous link list. The list is updated during the day with the latest news about central banks so readers don't miss any important developments.

• Draghi sends strong signal that ECB will act (Reuters)
• Central banks search toolbox for ideas as growth slows (Bloomberg)
• Greek bank deposits hit six-year low in June:ECB (Reuters)
• Egypt may keep interest rate unchanged as currency weakens (Bloomberg)
• Central bank brings 'cautious' monetary policy (The Himalayan)
• EU: Interest-rate manipulation should be a criminal offense (AP)
• Carney leading Bank of England seen as scandal remedy (Bloomberg)
• www.CentralBankNews.info