Archive for October 29th, 2008

IMF and BIS resources on financial stability

October 29, 2008

Financial Stability is surely the flavor of the season (I hope it remains as a main concern and challenge). Both BIS and IMF have done their bit and have developed websites for the cause.

Here is IMF’s web portal which has IMF’s comments and superb collection of papers on financial stability.

Here is BIS link which is a collection of recent Central Banker speeches on the subject.

Iceland does a reversal- raises rates by 600 bps to 18%!

October 29, 2008

It is not just Denmark but Iceland too. Central Bank of Iceland has raised rates by 600 bps from 12%to 18%. However, there is a difference. Denmark continues to raise rates but Iceland reverses its previous decision taken on October 15 2008 (this is just 13 days ago) . On 15 Oct it said:

The Icelandic economy has been subjected to unprecedented turbulence in the past few weeks. The Icelandic banking system has not been able to withstand the trials it has faced as a result of difficult market conditions, global deterioration of confidence in economic affairs, and domestic risk appetite.

A variety of jobs have disappeared virtually in the blink of an eye, demand has declined precipitously, and by all measures, expectations are at a low ebb. The impact of the collapse of the banking system will be extremely burdensome and the accompanying economic contraction very sharp.

On 28 Oct 2008 it says:

Last week the Icelandic Government and a mission from the International Monetary Fund concluded an agreement. One of the points in the agreement was that when it will be presented to the Executive Board of the Fund for its approval, which should happen in the next few days, the Central Bank was to have raised the policy rate to 18%. This has now been done. This decision has been taken with reference to the fact that, with the collapse of three banks and the harsh external measures that followed, Iceland’s foreign exchange market became paralysed. Although the situation has eased somewhat, some restrictions continue to be inevitable.

On checking the IMF loan to Iceland , it is just about USD 2.1 billion. Isn’t it too less?

Anyways, the decision on 15th Oct 2008 was to save falling economy and on 28th Oct 2008, it is to prevent currency depreciation. So, whichever market you try to save, the other goes for a toss. This is precisely the problem faced by all emerging economies.

Assorted Links

October 29, 2008

1. WSJ Blog points how much Fed cut? Does it matter really? It points ex-Fed Governor advocates a zero fed funds rate

2. JRV is pessimistic on Indian eco outlook. ACB as well

3. TTR points Fed should add fin stability as its 3rd objective.

4. MR points markets are pricing a deep deflation. It also points to the banking linkages of developed economies with emerging economies

5. NB points to a must read paper for Beh eco people- If behavioral economists wrote financial regulations…

6. Mankiw points to an article from Summers on fin sector excesses

7. Rodrik on emerging market dilemma

8. Fin Prof points despite all the mess bonuses continue even in failed firms like Merril Lynch

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