For those who forgot to mark their calendars, January 1 marked the official start date of the Liquidity Coverage Ratio, which will be fully phased-in by 2019. The LCR aims to reduce bank vulnerability to runs by requiring lenders to hold a certain proportion of safe, easy-to-sell assets to offset their short-term obligations.
The easiest way for a bank to satisfy this requirement is to buy government debt and hold reserves with the monetary authority. In the US, domestically-chartered commercial banks hold about $600 billion in US Treasury debt — a shade less than 6 per cent of the total held by the public (excluding the Fed), as well as $1.5 trillion in cash and reserves at the Fed. Add in the $1.4 trillion of MBS guaranteed by Fannie and Freddie, which for regulatory purposes counts as a liability of the US Treasury, and you have roughly 28 per cent of the total value of domestically-chartered bank assets held in the form of safe and liquid securities. Read more
Politics has definitely been an element in the discussions around who will replace Ben Bernanke at the Fed. That’s probably putting it mildly. But we suspect even the US doesn’t have quite the partisan obsession Australia boasts.
Australia’s central bank cut its cash interest rate to 2.5 per cent today, a record low. Australians being a rather highly leveraged bunch, the RBA’s interest rate decisions are almost always reported with focus on the implications for mortgagees. And this cut happened to be made a few days after an election was called which, surprise surprise, is set to be tightly contested… Read more
The Reserve Bank of Australia’s deputy governor has been speaking on Thursday. Sadly there were no jokes but Philip Lowe did attempt to explain his boss’s side-splitting gag.
RTRS – RESERVE BANK OF AUSTRALIA DEPUTY GOV LOWE SAYS BOARD DID DELIBERATE FOR VERY LONG TIME, BUT ALWAYS DOES Read more
Kevin Rudd 2.0 has been quick to highlight the dangers posed by slowing Chinese growth since he was returned as Australia’s prime minister.
For example: Read more
Central bankers can do many things but they should never, ever attempt humour.
To illustrate the point we present the price action in the Australian dollar on Wednesday. Read more
Another day, another Aussie GDP downgrade.
From BofA Merrill Lynch: Read more
The pain goes on for the currency dubbed until recently the southern Swiss Franc…
We are, of course, talking about the Australian dollar — now going head to head with the Syrian pound for the title of the world’s worst performing currency.
The latest drop follows a call from Pimco of even lower interest rates. Read more
Bank of Korea has done its bit to stoke the currency wars…
Although they insist that it’s not. From BAML’s Jaewoo Lee:
In the press interview, the Governor cited a few main changes since April which led the BoK to cut in May rather than in April: the supplementary budget was finalized; many central banks, including the ECB, turned to easing mode; and the easing can help further with improving sentiments. The Governor, on the other hand, stated that today’s decision was not a response to the yen weakness, contrary to the often-voiced speculation.
Economists mostly failed to predict that the Reserve Bank of Australia would cut rates to a record low of 2.75 per cent at its monthly meeting today. Yep, lower than during the height of the financial crisis — another sign that we’re living in different times now. Read more
Australia’s currency has become a different kind of creature in the past few years, moving from being mostly a commodity play to more of a safe haven. This has been something of a double-edged sword for the country’s monetary policymakers: it helped avoid a big inflationary spike as the mining investment boom was booming; but now that wave is close to peaking, the burdens of having a premium currency are becoming harder to bear. Read more
Remember Australia’s inverted yield curve in 2012?
Strong currencies are the bane of every triple-A rated, QE-less economy in currency war-torn 2013, it seems. It’s become an increasingly irksome point in Australia, where the initial exuberance over cheap foreign holidays has been slowly replaced by worries that it’s squeezing the non-mining sectors.
An FOI request by Bloomberg yielded a bunch of documents from the Reserve Bank of Australia about the currency’s overvaluation problem. Specifically, how bad it is and who’s to blame. Well, who among other central banks*, at least. Here’s list of the definitely-implicated: Read more
The Reserve Bank of Australia cut its cash rate on Tuesday to 3 per cent — making a total of 175bps worth of cuts since November 2011, and bringing the rate to its lowest level since the depths of the financial crisis.
The RBA’s governor’s statement alluded to the bank’s discomfort over the stubbornly high Australian dollar, which is not doing what it tended to do in the past and falling to provide a fillip to the economy: Read more
A lot of ink has been spilled by various FX strategists over what the Reserve Bank of Australia is or isn’t doing with its FX transactions and whether this is or is not tantamount to printing money. The RBA isn’t ‘printing money’ but it is doing something… or rather, not doing something, as a way of signalling that it doesn’t like the Australian dollar being so strong. They’ve been given the opportunity to do this by a foreign central bank, but that’s neither here nor there. Read on for all the messy details… Read more
So Glenn Stevens likes the nags after all.
Well, sort of.
For the first time since he took the helm of the RBA in 2006, the governor did not tinker with interest rates on Melbourne Cup day (a public holiday across parts of the country). Read more
Is the Reserve Bank of Australia intervening in the market to hold down the remarkably resilient Aussie dollar? That’s the question commentators and economists are asking themselves following the publication of data at the end of last week that showed a significant increase in the pace of foreign exchange accumulation (admittedly from a low very low base) in August and September. Read more
Australia’s central bank cut its overnight cash rate by 25 bps today, to 3.25 per cent — close to the crisis-level low of 3 per cent.
It’s interesting for several reasons, one of which is that many strategists didn’t see it coming. Read more
… must come down.
What might the following index looked without the threat of war with Iran and/or the continued existence of the gold bug brigade? Read more
That the Australian economy may be in trouble will not be news to FT Alphaville readers.
We’ve been warning for a good while that the country is uniquely exposed to the commodity super-cycle, an overvalued currency, a real-estate bubble, not to mention the Chinese slowdown. Read more
Here’s a bold call: the developed world’s fastest growing (that’s Australia for those of you at the back of the class) will fall in to recession next year as the China-driven mining investment boom ends.
Given the recent declines in Chinese steel prices and spot iron ore price, Deutsche Bank economist Adam Boyton reckons Australia’s terms of trade (the price of exportable goods divided by price of importable goods) could be 15 per cent lower year-on-year by the fourth quarter. Read more
It can’t be much fun being an Australian in London at the moment. (Trailing the Brits is one thing, but lagging the Kiwis in the medal table must really hurt.)
But at least our antipodean visitors can afford to indulge in a little retail therapy at Westfield Stratford City (the Australian dollar is trading close to a record high against the British pound) or, if they are really embarrassed, hop on the Eurostar to Paris (where the dollar hit a record high against the eurothingy just last week). Read more
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:
Well, not if you are short the AUD because of all that hard landing business. Or, if you are an Australian exporter.
The Australian dollar has long been seen as a China/commodities trade, but Macquarie’s Brian Redican reckons that’s no longer the case. The currency is increasingly influenced by external factors, rather than the country’s own ever-growing mining sector, or its monetary and fiscal policy. Read more
The point has been made before that rising deposits at the ECB do not, (repeat, not) indicate that banks are “hoarding liquidity”.
Here’s Guy Debelle, assistant governor at the Reserve Bank of Australia, on the subject, in a speech made earlier on Tuesday: Read more
We noted a while back that Australia was facing a serious problem in its bond markets. In short, the country seems to be running out of public government debt.
There isn’t anywhere near enough to satisfy demand. The pressure is heightened by regulatory demands for Australian banks to hold ever more of their capital in liquid government debt securities. Read more
Regulators are demanding that banks set aside larger amounts of high-quality liquid assets to help them withstand periods of market stress.
The securities generally deemed acceptable are AAA-government bonds. Read more
Canberra formally rejected Singapore Exchange’s A$8.4bn ($8.8bn) bid for its Australian rival, ruling that the takeover could undermine Australia’s position as a financial centre and the stability of its financial system, reports the FT. In a strong statement, Wayne Swan, the country’s Treasurer, on Friday told reporters it was a “no brainer” that SGX’s bid was not in Australia’s national interest and stressed the ASX’s “critically important” clearing and settlement functions. He also revealed that the Reserve Bank of Australia and securities regulator ASIC had opposed the takeover. Swan was widely criticised after indicating on Tuesday that the government was likely to block the takeover. The WSJ warns that the move “risked damaging the country’s appeal to foreign investors”.
After New Zealand’s earthquake and Australia’s floods and cyclones — not to mention raging fires that preceded — anyone would think someone up there had it in for the Antipodes.
Despite the ravages of weather, however, Australia seems to be living up to its “Lucky Country‘ tag. Amid fears about the economic fallout from the weather disasters of December and January, the government on Wednesday reported 0.7 per cent quarterly growth. Softer than hoped for but not nearly as bad as some feared. Read more
The Reserve Bank of Australia on Tuesday left its benchmark interest rate at the highest level in the developed world, saying a stronger currency and an earlier decline in wage growth are helping to contain inflation, reports Bloomberg. RBA governor Glenn Stevens held the overnight cash rate target at 4.75% on Tuesday, as forecast by all 25 economists surveyed by Bloomberg. The central bank expects inflation to stay within its target range of 2%-3% over the next year, he said in a statement in Sydney. After raising rates seven times from October 2009 to November 2010, the RBA is now favouring growth over containing prices as Australia recovers from flooding and cyclones.