Four trends in central bank-land | FT Alphaville

Four trends in central bank-land

1. The central bank bashing doesn’t start and end with Bernanke.

Central banks just about everywhere make fantastic political punching bags, and the popularity of this tactic is growing. For example

FRANKFURT — As the euro zone crisis shows signs of heating up again, political leaders are once more looking to the European Central Bank for help.

Indeed they are:

François Hollande, the front-running Socialist candidate in the French presidential election, said on Monday the European Central Bank should have intervened “massively” by lending directly to eurozone countries to save Greece and counter the sovereign debt crisis.

This particular election campaign-driven episode was sparked by Nicholas Sarkozy breaking his “no ECB bashing” pact with Angela Merkel over the weekend.

Even Australia’s central bank, whose board could be forgiven for thinking they were showing admirable restraint by “taking away the punch bowl”, is being roundly beaten up by everyone from TV presenters to union leaders to, er, former political advisors for daring to wait for inflation data before deciding on an all-but-certain rate cut.

Which takes us to the next (possible) trend:

2. Central banks are (maybe) moving away from inflation targeting.

The M&G Bond Vigilantes have been predicting for a while that inflation targeting will become less central for central banks. And Scott Sumner, a big nominal GDP-targeting proponent, has for some time been pointing to signs of an open-mindedness to move away from inflation targeting within the Fed and BoE.

And lo and behold, the Reserve Bank of India appeared to be quite manifestly accepting the challenge on Tuesday:

After having increased interest rates 13 times since March 2010, the RBI’s move reflects a shift in the bank’s policy from focusing exclusively on reining in inflation – which at 6.89 per cent remains high – to reviving the country’s slowing economy, which has been choked by its aggressive monetary tightening strategy.

3. Central banks are not liking the euro.

Not such a surprise, as we knew they were increasing their holdings of “other currencies” in general. But the FT’s Claire Jones has this interesting story about a survey of central bank reserve managers. Most of them said they felt increasingly averse to the single currency:

More than three-quarters said the sovereign debt crisis had had a profound impact on their reserve management strategy, with their central banks pulling back from eurozone counterparties and reconsidering attitudes towards the single currency.

4. Central banks are becoming equities-curious.

Also from Claire’s story:

Surprisingly, equities – a relatively uncommon investment choice for central banks because of their riskiness – were viewed as a more attractive option now than a year ago for 60 per cent of those polled. The Bank of Israel said in March that it could invest up to 10 per cent of its reserves in US equities. But few other central banks, apart from the Hong Kong Monetary Authority and the Swiss National Bank, have acknowledged that they own stocks.

Interesting times.

Related links:
India cuts growth rates by 50bp in growth gamble – FT
The Villain – The Atlantic
Money Supply blog – FT