NEWSMAKERS
- MPC split
- Rates to rise July 5
- Tucker defends MPC decision-making process
- Scurrilous rumours
- Brown improves appointments process
- Hedge funds hire Large
- Gamekeeper turns poacher
- Cullen chose his central banker well?
- Marko Kranjec for Slovenia
- Roberto del Cueto No 2 in Mexico
- Gono around “until the day the Lord calls”
- Rosengren for Boston Fed
- Willams 2nd term
- Brain drain from the Bank
- Protests against suspension of governor -
- Bank of Thailand denies approving funds transfer
MPC
split
All eyes on Thursday morning, July 5, are on the outcome of the meeting
of Britain ’s monetary policy committee. At the last meeting in
June, the MPC declined to follow the lead of governor, Mervyn King, voting
5-4 to keep the policy rate unchanged at 5.5%. King and three others wanted
a quarter point rise because inflation risks are on the “upside”,
but five members including three of his own staff overruled him (Rachel
Lomax, deputy governor, Charlie Bean, chief economist and Paul Tucker,
head of markets).
It is clear that King deliberately put down a marker, as a governor never
need be overruled; he can simply wait until the others have voted before
making his decision. The crucial vote in such a case takes place at the
meeting following the one where the governor puts himself in a minority.
If at that second vote he remains in a minority, despite putting down
a public marker, then many people in the City, and in other central banks,
would see that as tantamount to a vote of no confidence.
The vote was the second King has lost as governor, the first coming in
August 2005 when he voted against a cut. Standing with him in calling
for an increase in the cost of borrowing were his loyal deputy, Sir John
Gieve, and two "external" members of the committee, Andrew Sentance
and Tim Besley, who the press delight in dubbing “superhawks”.
Rates
to rise July 5
The City fully expects the MPC to raise rates. The main reason however
for this expectation was not that evidence had accumulated to support
the governor’s view or an intellectual conversion on the part of
the majority but rather that a failure to follow his lead risks severely
damaging credibility. Even in the individualistic (eccentric?) British
model, that would be very difficult for the MPC to manage. So at least
Paul Tucker was expected to recognise that and change sides. But if Tucker
is the only one to change, again that would leave the governor with a
problem, as it would suggest that deep division s in the MPC remain.
Tucker
defends MPC decision-making process
Coincidentally, Paul Tucker has recently been discussing the political
economy of MPC. He believes that the one-person, one-vote structure
of the Bank of England’s MPC provides “powerful incentives”
for each member to reach their own view. He acknowledges that this also
requires clarity between communications that reflect the committee view
and those that explain the views of individual members.
Tucker accepted some of the arguments in favour of publishing conditional
plans for future interest rates. In his keynote address to a conference
on “Inflation Targeting, Central Bank Independence and Transparency”
at the University of Cambridge , he acknowledged that the structure
does not make it easy to secure a stable majority for a particular path
for interest rates. He added that having a highly conditional path would
complicate communications with parliament and the wider public.
The trouble is that the process can easily lead to suspicions that individual members of the MPC may be playing games. With the end of Mervyn King’s first term as governor approaching, there have been some nasty suggestions, for example, that some members may be manoeuvring to catch the eye of the new prime minister, Gordon Brown, and his new chancellor, Alistair Darling. Such suspicions are unworthy and totally unfounded – the new chancellor is not such a fool that he would be taken in by them in any case – but is there something amiss with a process that lends itself to such rumours?
Brown
improves appointments process
Brown has vowed to make the process of appointing MPC members more transparent,
including an open invitation to candidates.
Brown revealed the new plans during his last meeting as chancellor with
the House of Commons Treasury Committee. Critics of the way the chancellor
appoints the four “external” members suggest that its process
is confusing and secretive, and undermines the credibility of the central
bank.
Brown told MPs that the Treasury would in future invite “expressions
of interest” from economists and other relevant experts interested
in serving on the nine-strong MPC. He added that appointments would follow
a clearly set out timetable.
“We are introducing more transparency and more accountability. We
are doing what no other major central bank does,” Brown said. “Neither
the Federal Reserve nor the European Central Bank or other major central
bank have a system for publishing a timetable, nor do they invite expressions
of interest, and that is what we are proposing to do today.”
Hedge
funds hire Large
Thirteen of Europe ’s largest hedge funds have asked Sir Andrew
Large, a former deputy governor of the Bank of England, to head a study
group examining voluntary standards. The group will look into valuation,
disclosure and risk management, all areas in which investors want the
funds to improve their practices. Sir Andrew has a track record of running
an industry self-regulatory group, as former chairman of the Securities
and Investment Board which preceded the Financial Services Authority.
The general idea is to see off Continental calls for regulation.
Britain’s Financial Services Authority has seen a number of its senior regulators leaving to join the ranks of the regulated, and the latest is Chris Rexworthy, who was responsible for setting up the Authority’s hedge fund practice. Rexworthy, who until recently was the head of wholesale investment firms at the City watchdog, will join IMS, a compliance consultancy, together with three of his FSA colleagues.
As director of institutional business at IMS, Rexworthy will advise its largest clients, many of which are hedge funds.
At the FSA he was in charge of supervising over 2,000 firms including hedge fund managers and private equity companies.
Cullen
chose his central banker well?
Alan Bollard, the governor of the Reserve Bank of Zealand , is under fire
for having adopted a “go for growth” monetary policy strategy.
Rodney Dickens, managing director of Strategic Risk Analysis Limited,
suggested that “Bollard experimented with much lower interest rates
than history suggested was required to keep domestic inflation under control”
in the early part of his tenure.
Dickens said that this approach was politically inspired: “This
is not to say that Governor Bollard is a political puppet, but more that
finance minister [Michael] Cullen chose his governor well.”
"The independence of monetary policy has already been watered down
by political interference, but the risk of greater meddling lies ahead
because of Labour’s desire to win an historic fourth term in government,"
Dickens argues.
Countering such criticism, Grant Spencer, assistant governor at the Reserve
Bank of New Zealand said on 27 June that the central bank may continue
selling its domestic currency, now trading at its highest level in more
than two decades. Attempts to lower the value of the New Zealand dollar
do not “run counter to monetary policy and the Reserve Bank’s
low inflation objective”, he asserted.
On 11 June the central bank sold the kiwi for the first time since the
currency was allowed to float 12 years ago (see our previous news items
on this subject). However, despite this controversial move, the currency
has gained more than 2% against the currencies of New Zealand ’s
main trading partners.
“Claims by some observers that the bank has somehow ‘thrown
away’ taxpayers’ money by intervening simply do not stack
up,” said Spencer.
“[Currency] intervention is a supplementary monetary policy tool
and is considerably less potent than the central OCR [Official Cash Rate]
instrument which has an important influence on the trend of the exchange
rate.”
Marko
Kranjec for Slovenia
After a month-long deadlock the parliament of Slovenia finally approved
a new central bank governor. The new governor is Marko Kranjec, an economics
professor and financial expert who was the country’s first finance
minister.
His appointment ended a period of political wrangling during which country's
Parliament, dominated by the central right government of Prime Minister
Janez Jansa, rejected two candidates put forward by President Janez Drnovseki.
The governor of Slovenia ’s central bank is a member of the European
Central Bank, which together with the European Union had brought pressure
to bear on the two leaders to back Kranjec and end the three-month interregnum
during which the central bank had no head. This year, Slovenia has sent
deputy governors to vote on interest rates at ECB's monetary policy meetings.
Hardly an ideal start for the new member of the euro area.
Roberto
del Cueto No 2 in Mexico
The Mexican president, Felipe Calderon, has proposed Roberto del Cueto
as the deputy governor of the country's central bank for a seven-year
term on 20 June.
The nomination of Calderon's first choice for the post, former deputy
finance minister Carlos Hurtado, was rejected in March after opposition
legislators accused him of increasing spending on government posts under
Vicente Fox's administration.
Mexico's central bank board comprises the veteran governor, Guillermo
Ortiz, and four deputy governors. All have votes to decide monetary policy.
Gono
around “until the day the Lord calls”
South Africa's central bank governor has criticised the 2005 takeover
by Barclays Bank of Absa, a South African retail bank, the Financial Times
reported. Reserve Bank governor Tito Mboweni called the British bank's
stewardship of Absa "discouraging", the newspaper said.
Mboweni was quoted as telling the FT that, while Barclays was repatriating
dividends from South Africa to Britain, he had yet to see the benefits
of its management of Absa with the successful roll-out of new products
and systems.
He also noted that the cultures of Barclays, Britain's third-biggest bank,
and Absa, South Africa's biggest retail bank, had yet to slot together,
according to the FT.
“Barclays doesn't manage Absa,” the central banker said.
The newspaper quoted Barclays as expressing surprise at Mboweni's remarks.
Rosengren
for Boston Fed
Eric Rosengren will become president
and chief executive officer of the Federal Reserve Bank of Boston on 23
July. He will succeed Cathy Minehan who retires after 13 years as president
of the Boston Fed, and nearly 40 years of service in the Federal Reserve
System. Rosengren joined the Boston Fed as an economist in 1985 and is
currently its executive vice president and head of supervision. Before
that he was head of the banking and monetary policy section of the bank's
research department.
Willams
2nd term
The Central Bank of Trinidad & Tobago reappointed Ewart Williams for
a second five-year stint as governor a month before his contract was due
to run out. Williams became governor of the central bank in 2002 after
a long career in the IMF where he completed his career there as deputy
director of the Western Hemisphere Department. In this capacity, he was
one of four senior managers responsible for the IMF's work in Latin America
and the Caribbean.
Brain
drain from the Bank
The annual report of
the Bank of England acknowledges concerns about the departure of some
of the central bank's economists, seduced away from Threadneedle Street
by the promise of higher pay in the financial service sector. The starting
salary offered by the Bank to an economist with a PhD is £37,230,
which is only about one-third of the 2005 average earned by their counterparts
in private sector financial institutions in the City. The report noted
that directors said that the Bank should be focused both on recruitment
and the retention of its best staff.
“We support the executive management’s desire to identify
and promote the Bank’s best talent early in their careers, given
the inevitable pay differentials between the Bank and financial sector
employers in the City.”
The report showed that the Bank employed 1,555 full-time and 189 part
time staff at the end of February, 5% less than a year earlier
Protests
against suspension of governor-
Krishna Bahadur Mananda, currently deputy governor, has been appointed
as acting governor of Central Bank of Nepal . The Nepal government had
suspended the governor Bijayanath Bhattarai from his post, following
charges of financial irregularities. The Commission for Investigation
of Abuse of Authority (CIAA) has filed a case against Bhattarai at the
special court; and the World Bank said that it would conduct an internal
review of the allegations. It was reported that NRB staff staged a protest
in front of the CIAA office yesterday calling the charges against Bhattarai
and Pradhan "baseless and ill-intentioned."
"The action can adversely affect financial sector reform, the banking
sector and the economy as a whole," said Nepal Bankers Association.
Bank
of Thailand denies approving funds transfer
Thaksin Shinawatra, ex prime minister of Thailand , may have purchased
Manchester City football club in a deal said to be worth £81 million
and he may have hired former England manager Sven-Goran Eriksson to manage
it, but according to the Bank of Thailand he has not yet moved funds out
of Thailand for his purchase. This apparently contradicted statements
made by Thaksin's legal advisor, that the money had been transferred from
Thailand with permission of the central bank.
Suchart Sakkankosone, BoT's exchange control and credit department director,
told the Thai News Service that the central bank database showed it had
allowed the Shinawatra family to take money out of the country to buy
property twice in the past three years. First, the family sought a modest
sum of money to acquire an apartment in the United Kingdom for Mr. Thaksin's
eldest daughter Pinthongta, who is studying there. Second, the family
asked the central bank for a shift of around Bt400 million to purchase
a house in the UK .
But Thaksin’s chief defence lawyer disputed allegations that the
purchase was financed by hidden wealth."The National Counter Curruption
Commission (NCCC) is welcomed to check Thaksin's declared assets and I
only demand a straightforward audit without a pretext to fault him,"
Noppadon Patama said.Noppadon was reacting to reports that Thaksin's asset
statements did not seem to correspond with his London wealth designated
for the Manchester City deal. He argued that Thaksin financed his deal
with honest earnings and that he was not obliged to declare funds held
by his adult children, relatives and close associates.
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