26 October, 2000

News this issue:

 

Polish central banker resigns October 20

Hanna Gronkiewicz-Waltz announced she would leave the central bank in January to become a deputy head of the European Bank for Reconstruction and Development (EBRD). President Aleksander Kwasniewski, who must propose candidates for the post to parliament, said he was choosing from seven or eight internationally respected economists. His proposal has to be approved by a majority in the fractured parliament. Kwasniewski said the group included presidential economic adviser Marek Belka, former finance minister Leszek Balcerowicz and two members of the central bank's monetary policy council - Boguslaw Grabowski and Dariusz Rosati.

BoE's George says euro substantially undervalued October 24

Bank of England governor Eddie George said in a speech in Paris on Tuesday, "The euro is substantially undervalued in terms of the medium-term 'fundamentals', so in the same way sterling is on most calculations substantially overvalued against the euro…For the time being our best bet, it seems to me, is for both the Eurozone and the UK to continue to pursue macroeconomic - both fiscal and monetary - stability in parallel, and to hope that the euro recovers, as I continue to expect that it will".

Yugoslavia eyes quick readmission to IMF 24 October

Yugoslavia and the IMF agreed on Tuesday on steps which would allow the country to rejoin the Fund and get some financial help for future reforms. Yugoslavia was expelled from the Fund in 1992. However, Mladjan Dinkic, who is informally performing the duties of central bank governor, said, "There are three fundamental preconditions we must meet before we restore membership with the IMF. One is legal, one political and one economic."

Colombia central bank sees 2000 inflation 8.5% - 10% October 23

Colombia's central bank said that despite high world oil prices, the country is on track to meet the 10% inflation target for this year agreed with the International Monetary Fund. "It's one of the big successes of the year that Colombia will achieve its inflation goal even with gasoline prices so high," said central bank governor Miguel Urrutia at a press conference. The bank's quarterly inflation report said its models show inflation for the end of the year coming in at between 8.5% and 10%, compared with its prediction in May that inflation would be between 9% and 11%. For the first nine months, consumer price inflation was running at 7.7%. The report also detailed a survey of investment banks, risk-rating agencies and analysts on what they predicted for inflation in 2000 and 2001. The groups predicted that inflation on average will be at 9.8% for 2000 and will increase to 10.7% in 2001, higher than the central bank's models. "We report on their predictions so we can see how wrong they were," said Urrutia, smiling. "I'm very diplomatic, no?"

Thiessen pushes for debt standstills October 24

At the G20 meeting in Canada, bank governor Gordon Thiessen, proposed the idea of debt standstills to provide a "breathing space during which debt service can be re-scheduled". Bailouts for countries in crisis should be limited, Mr. Thiessen said. And clear rules about how to handle crises should be established so that all investors, governments and international financial institutions can know what to expect. Part of that framework should be an allowance for standstills or temporary suspensions of debt payments while creditors and debtors work things out. "Standstills should not be construed as a way of relieving debtors of their obligation to service their debts. I see them, rather, as a crisis management device," Mr. Thiessen said. His idea was received rather sceptically. Mexican central bank governor Guillermo Ortiz said that imposing standstills or any other new measures imposed by rich countries or international financial institutions on emerging market countries such as Mexico will only scare foreign capital away. "These approaches that involve the private sector in crisis resolutions ... are not very effective," he said. "And they may explain why to some extent we are getting a further reduced base of investors in emerging market countries."

Buenaventura says credit downgrade was harsh October 20

The Philippine central bank said on Friday the move by Standard & Poor's to downgrade its long-term outlook on the Philippines to negative from stable was harsh. "It was rather harsh given the Philippines has a democratic process for change. To say there is uncertainty is exaggerated, because obviously political solutions will be found and none of these will be violent means," central bank governor Rafael Buenaventura said. S&P on Thursday revised its long-term outlook on the Philippine to negative, and warned that the attempt to impeach President Joseph Estrada amid bribery charges may affect the country's credit worthiness.

Iran bank governor says debt repayment will lower rates 21 October

Governor of Central Bank of Iran Mohsen Nourbakhsh said on Saturday that the total debts of government and government-affiliated organisations stands at over 122bn rials and its repayment to the banking system will also reduce interests charged by banks on loans. He added that currently, the interest on deposits is eight to 18.5 per cent (in case of long-term deposits) and every depositor expects at least to earn the equivalent of inflation rate on bank deposits. Nourbakhsh said the liquidity stands at 210,000bn rials, adding that over half of the figure is in the hands of government and its affiliated organizations. He also underlined that this is one reason for the ineffectiveness of the banking system in providing inexpensive credit to clients.

Ukraine central bank council backs strong currency October 19

The head of the newly formed Ukrainian central bank council said last Thursday that the body would back a policy of a strong hryvnia currency and focus on slowing inflation. "We will work constructively with the (central bank) board on strengthening monetary and credit policy and on strengthening the national currency," Anatoly Halchynsky told a news conference. "We are backing a strong currency," he added after being elected to head the council for a three-year period. Halchynsky, who is President Leonid Kuchma's economic adviser, said the council was worried about the high pace of consumer inflation this year and would focus on measures to slow it next year. The central bank council was created to oversee Ukraine's monetary and credit strategy while the central bank board will be in charge of working out concrete steps. The central bank council, a 15-member body, includes a mix of parliamentarians, economists, government members, presidential advisers and the central bank governor.

Sabirin Sjahril to go on trial quickly October 19

The Jakarta provincial prosecutor's office will soon submit the dossier on suspended Bank Indonesia governor Sjahril Sabirin to the Central Jakarta district court, a prosecutor said last Wednesday. Andi Syarifuddin, assistant prosecutor for special crimes, said Sjahril was charged with ordering the reimbursement of a Rp904bn ($101.5m) interbank loan guaranteed by the government in a move which has become known as the Bank Bali scandal. The state prosecutors allege that Sjahril had given an order between February and June of last year to his subordinates to reimburse the loans using the government's bailout money despite the fact that the central bank had yet to verify the money market transactions between Bank Bali and three defunct private banks - Bank BDNI, Bank Tiara and Bank Umum Nasional. The three banks had earlier defaulted on their debts.

Jarai could replace Suranyi as central bank governor in 2001 October 18

Finance minister Zsigmond Jarai has the best chances to follow Gyorgy Suranyi in the position of central bank governor next March, the Hungarian economic daily Vilaggazdasag reported. The six-year mandate of central bank governor Gyorgy Suranyi, who was appointed by the previous government, will expire as of March 31, 2001 and it is widely believed that the current government does not intend to extend it. According to Vilaggazdasag, the government has already prepared a scenario on selecting a successor, and the final decision will be taken after the two-year central budget is approved by parliament at the end of December. In addition to Mr Jarai, possible candidates include deputy president of OTP Bank Zoltan Speder as well as the bank's deputy CEO and head of the retail division Csaba Lantos. According to the central bank act, the central bank governor is appointed and dismissed by the president of the republic, at the prime minister's proposal. However, the government said that the appointment of the governor was not on the agenda.

Bank governor says no Milosevic accounts in Cyprus October 18

Cyprus' central bank governor Afxentis Afxentiou last Wednesday described as "fairy tales" reports that former Yugoslav President Slobodan Milosevic had accounts in local banks. Afxentiou said anyone who possessed such evidence should present it to the central bank for investigation. He said it was not the first time such reports had appeared. "Those who talk about Milosevic's accounts, should go and look in other countries", he said, adding that the bank had carried out investigations at the request of the International Court in The Hague and that "nothing was found".

Bank governor outlines core fiscal policy October 10

The core of the fiscal policy for 2001 is to concentrate huge flow of cash outside the bank operation or facilitate their flow through banks, said Bank of Mongolia governor O. Chuluunbat at the parliamentary hearing of the standing committee on economics. In order to do so, there is a need to tighten the legal environment, avoid bad loans, develop equity market, and issue new kinds of securities.

Transparency drive at Bank of Japan October 13

The Bank of Japan is to start publishing forecasts for inflation and economic growth for the first time, in an effort to provide greater clarity in monetary policy, its policy board announced. The decision, which will take effect at the end of October, marks the first significant change in the central bank's monetary policy framework since it won its independence two years ago. However, although some economists have called for clear policy targets, Mr Hayami has so far rejected any suggestion that the bank should introduce inflation targets.

Yemen governor counts oil blessings October 13

Robust oil prices have helped boost Yemen's foreign reserves to a record high of $2.5bn. The extra revenues are also speeding up economic reforms and the repayment of the country's debts, central bank governor Ahmad Abdul-Rahman al-Samawi said. He added that the windfall will be used to fund Yemen's campaign to combat poverty and illiteracy in the country of 17.5 million. Oil revenues are expected to reach $1.4bn by the end of the year compared with $495m in 1999.

SARB gets new power on reserves October 13

The South African parliament has given central bank governor Tito Mboweni a new lever of monetary policy, giving him the right to change the definition of what type of money commercial banks must hold as reserves. The South African Reserve Bank Amendment Bill allows Mboweni to determine from time to time what proportion of the notes and coins in banking halls and vaults can be counted towards the minimum 2.5% of liabilities that must be held in non-interest-bearing cash reserves.

Russian central bank in role cut 24 October

The Central Bank of Russia will guard its independence on monetary policy but may lose its autonomy over commercial bank regulation, the country's finance minister has said.

Bank of France warns on 35-hour week October 24

The Bank of France has thrown its weight behind calls to ease the burden on companies introducing the government-imposed 35-hour week.

John Nugee leaves Bank of England October 23

John Nugee, head of reserve management at the Bank of England, has joined State Street Bank in London as head of the official institutions group. New email john_nugee@ssga.com . The new head of reserve management is Paul Chilcott (Paul.Chilcott@bankofengland.co.uk).

Women in central banks (update)

I want to thank anyone who sent me an email suggesting additions to list of prominent female central bankers that I included in the last "Newsmakers". If you think of ones I have still missed out, please let me know: BWELLER@CENTRALBANKING.CO.UK

  • MaryAnn Hunter, Senior Vice President, Federal Reserve Bank of Kansas City
  • Natalya Alexeeva, First Deputy Board Chairman, National Bank of Belarus
  • Nailia Abdullina , Deputy Governor, National Bank of Kazakhstan
  • Elena Kohutikova, Deputy Governor, National Bank of Slovakia
  • Eva Srejber, Second Vice Chairman and Deputy Governor, Sveriges Riksbank
  • Kerstin Hessius, Deputy Governor, Sveriges Riksbank
  • Tatiana Paramonova, First Deputy Chairman, Central Bank of Russia
  • Ms Khadija Gassanova, Director of Accounting and Reporting, National Bank of Azerbaijan
  • María Elena Ovalle Molina, Member of the Board, Central Bank of Chile
  • Darcy Boyce, Deputy Governor, Central Bank of Barbados
  • Sum Nipha, Deputy Governor of the National Bank of Cambodia ;
  • Naeem Hussain Nigar, Head of the Legal Department, State Bank of Pakistan
  • Latifah Merican Cheong, Assistant Governor, Bank Negara Malaysia ;
  • Lilian Bee-Lian Leong, Director, Investment and Treasury, Bank Negara Malaysia
  • Hooi-Eng Phang, Director, Economic Department, Bank Negara Malaysia
  • Nor Shamsiah Mohd Yunus, Head of Bank Regulation, Bank Negara Malaysia
  • Norainy Mohd. Sahid, Head of Information Systems Supervision, Bank Negara Malaysia
  • Essah Yusoff, Head of Human Resources, Bank Negara Malaysia
  • Mignon Wade, Senior Director, Bank Supervision Department, Eastern Caribbean Central Bank
  • Lydia Elliott, Legal Adviser, Governor's Office, Eastern Caribbean Central Bank
  • Ingrid Shortte, Director of Monetary Operations Department, Eastern Caribbean Central Bank
  • Elizabeth Tempro, Director, Communication Services Unit, Governor's Office, Eastern Caribbean Central Bank
  • Duangmanee Vongpradhip, Director of Human Resources, Bank of Thailand

Viewpoint: Latin America

Future Inflation Convergence By Leonardo Leiderman, Deutsche Bank Research
Email: Leonardo.Leiderman@db.com

Latin American inflation is now well within single-digit territory, yet it is still higher than the inflation rates in advanced countries and in other developing regions. At the same time, there has been a major reduction in the degree of exchange rate pass through to prices. Looking ahead, most of the inflation targets that have been set by the authorities in the region imply the continuation of a gradual process of inflation convergence to the rates observed in advanced economies.

The present analysis leads to the conclusion that in order to achieve these inflation targets in the context of the ongoing recovery in the region, most countries will have to maintain a tight monetary policy, at least in the next two years. The tight stance of monetary policy will be reflected in relatively high short-term real interest rates and relatively strong domestic currencies.

Specifically, higher short-term real interest rates may be needed in some countries, such as Mexico. In other countries such as Brazil, the room for further monetary easing will be limited. Over time, inflation convergence will enable domestic interest rates to converge to the levels prevailing in advanced countries (corrected for country and currency risk).

PAYMENT SYSTEMS

THE CONTRIBUTION OF PAYMENT SYSTEMS TO FINANCIAL STABILITY

In May this year there was a high-level payment system workshop held by the BIS' Committee for Payment and Settlement Systems in Mexico. It was only the second meeting of the CPSS outside Basel, following the May 1999 meeting in Hong Kong. The workshop brought 29 institutions together: as well as members of the CPSS, there were senior representatives from Aruba, the Bahamas, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Guatemala, Mexico, Nicaragua, Peru, El Salvador, Trinidad and Tobago, Uruguay and Venezuela. The workshop covered three broad areas: international standards for payment systems and securities settlement systems, retail payment systems and large-value payments. Presentations were made by those listed below are the papers are now available at http://www.bis.org/publ/cpss41.htm

John Trundle, Bank of England Tomoyuki Shimoda, Bank of Japan Gregor Heinrich, Bank for International Settlements Martin Andersson, Sveriges Riksbank Enoch Ch'ung, Monetary Authority of Singapore Francisco Solis, Bank of Mexico Carlo Tresoldi, Bank of Italy Lawrence J Radecki, Federal Reserve Bank of New York Martin Santema, Netherlands Bank Reynaldo M Geerman, Central Bank of Aruba Belkys Apolinar, Central Bank of Venezuela Félix Germaná Matta, Central Reserve Bank of Peru Daniel Heller, Swiss National Bank Johan Pissens, National Bank of Belgium Joaquín Bernal, Bank of the Republic Denis Beau, Bank of France Susana Zarruk de Muñoz, Central Bank of Nicaragua Jean-Michel Godeffroy, European Central Bank

"Changing Technology and the Payment System," By Jamie B. Stewart http://www.ny.frb.org/rmaghome/curr_iss/ci6-11.html

WEBSITE CORNER

Brand new CNB site

The Croatian National Bank website http://www.hnb.hr/ has been updated in a brand new format make it easier to access latest news and statistics. Monetary statistics are available in excel files. Ante Zigman, the website editor and head of the press office, left the CNB on October 1 and is now chief economist at Reiffeisen Bank Croatia.

Grahambishop.com

Graham Bishop, who is one of the leading advisers on European economic and financial issues has left Schroder Salomon Smith Barney, where he has been for 17 years, and set up an independent consultancy - http://www.grahambishop.com/

Bank of Sudan

Bank of Sudan launched its website http://www.bankofsudan.org/ on 23 September 2000. For enquiries contact Nagmeldin H. Ibrahim at the Bank of Sudan. Email FOREIGNDEBT@HOTMAIL.COM

PAPERS OF THE WEEK

A More Market Based Approach to Maintaining Systemic Stability
Email: David.Mayes@bof.fi

David Mayes at the Bank of Finland has written an occasional paper for the Financial Services Authority in London. It explains how using more market discipline can help improve the stability of the financial system. It has a clear abstract and executive summary at the beginning. Although published by the FSA, it is written from a central banking point of view i.e. concern for the system and the consequences of problems for society as a whole. It develops some ideas in a couple of earlier Bank of Finland Discussion papers. While it is aimed primarily at Europe it draws on New Zealand experience and is relevant for all countries.
Download: http://www.fsa.gov.uk/pubs/occpapers/op10.pdf

Identifying Policy-makers' Objectives: An Application to the Bank of Canada
By Nicholas Rowe and James Yetman

Abstract: In this paper, the authors develop a new way to test hypotheses about policy-makers' targets, and we implement that test for Canadian monetary policy. If, for example, the Bank of Canada is using interest rates to target an inflation rate of 2 per cent and there is an 8-quarter lag in the effect of the interest rate on inflation, then deviations of inflation from 2 per cent should be unforecastable and uncorrelated with any information in the Bank \of Canada's information set lagged by 8 quarters. This would imply that empirical causality tests of monetary policy on inflation could be very misleading. Our test indicates that there was indeed a major change in the Bank of Canada's objectives about the time when formal inflation targets were announced.
http://www.Bank-Banque-Canada.Ca/english/res/wp00-11.htm

Banks' Reserve Management, Transaction Costs, and Timing of Federal Reserve Intervention By Leonardo Bartolini, Giuseppe Bertola, and Alessandro Prati

http://www.ny.frb.org/rmaghome/staff_rp/sr109.htm

"Indicator Variables for Optimal Policy," September 2000, By Michael Woodford, Princeton and Lars Svensson, Stockholm University

Abstract: The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. An example of optimal monetary policy with a partially observable potential output and a forward-looking indicator is examined. The optimal response to the optimal estimate of potential output displays certainty-equivalence, whereas the optimal response to the imperfect observation of output depends on the noise in this observation.

http://www.iies.su.se/leosven/papers/swind.pdf

For other papers by these authors, it is well worth checking out their websites: http://www.princeton.edu/~woodford
http://www.iies.su.se/leosven

Papers by E Philip Davis

To see papers by the Bank of England's E Philip Davis, visit his website at http://www.geocities.com/e_philip_davis/new.htm . He has written extensively on VaR modelling, stress testing and financial stability issues.

BOOK OF THE YEAR: Monetary Policy Frameworks in a Global Context

Edited by Lavan Mahadeva and Gabriel Sterne Email: Gabriel.Sterne@bankofengland.co.uk

Or: Lavan.Mahadeva@bankofengland.co.uk

A new highly recommended book has just been published by the Bank of England's Centre for Central Banking Studies. It must have taken an astonishing amount of work. As well as having some 20 papers by some of the leading experts in central banking, it includes one of the broadest-ever surveys of monetary policy framework characteristics, covering 94 monetary policy frameworks. Using comparative analysis it looks at policy targets, institutional arrangements, transparency issues, levels of accountability and independence. The data sets which this report has produced will be a revolutionary resource for future monetary policy research. The report seeks to identify where the search for best monetary policy practice has found common ground and also distinguishes the circumstances under which countries might choose frameworks which depart from the norm.

Governor of the Bank, Sir Edward George, who launched the book, said, "The analysis of this book should be of enormous value to professional economists and students alike, and the data that have been gathered are an excellent information source."
 
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