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Central Banking Roundup

by internationalbanker

By Alexander Jones – alexander.jones@internationalbanker.com

Indian Banks to Push Derivatives Abroad

Selling derivatives may not be legal in India, but the country’s banks will now start selling structured derivatives in foreign markets. There are two specific reasons why this move is significant: first, Indian banks were not previously permitted to sell derivatives at all, even outside of India, and second, the banks are able to sell such products without getting approval from India’s central bank. This represents a departure from a 2008 law that required domestic bankers to get approval before marketing different financial products abroad, which signifies a loosening of India’s very structured approach to banking and finance.

Mexico Surprises World with Rate Cut

Mexico’s central bank surprised financial analysts by announcing it will cut lending rates to three percent, a record low for that country. Rates had remained unchanged since last October. Naysayers claim it means bankers are worried about growth.

Mexico has recently seen an uptick in exports, but overall job growth has been weak. Rate cuts, which have been used in the USA and other nations to help spur job growth and boost economic development, are still a new approach for Mexico. Mexico has enjoyed low rates of inflation—one key reason why its bankers opted to try rate cuts to boost the economy.

UAE Banks Say Dubai Could Have Property Bubble

Dubai is known for high-priced property and flashy everything. Ferraris are a common sight and so are fancy homes and penthouses. Lately, however, those penthouses can’t command rents as high as before and rent yields are dropping as real-estate prices have swelled. Officials at the United Arab Emirates central bank are worried that a bubble is about to burst.

The most recent real-estate crash in the UAE sheared off 50 percent of the value of average real-estate prices. In Dubai today, rent yields are now at least 70 basis points below historical average lows. Banks have capped the sizes of available mortgages to deter speculation, but experts say it won’t stop a crash.

Trinidad Central Bank Works to Ease Currency Woes

Trinidad and Tobago will sell $200 million to authorized currency brokers in order to ease the shortage of foreign currency in the two nations, the Central Bank of Trinidad and Tobago reported. The bank has no plans to devalue local currency.

The Central Bank was at pains to reiterate that it was taking “aggressive steps” to deal with the “unusual degree of tightness” being experienced in the local foreign exchange market after facing criticism from the Trinidad and Tobago Manufacturers Association.

Canada Leaves Rates Alone

The Canadian central bank won’t change interest rates, the bank’s governor, Stephen Poloz, said. Canada continues to grapple with a sluggish economy and has kept its benchmark interest rate for banks at the record low of one percent for the past three years.

Interest rates are typically hiked when an economy heats up and grows. Rate hikes prevent the economies from overheating, but Canada’s economy is still in need of a jump start. Unemployment hovers stubbornly at seven percent and exports are persistently weak even as the Canadian dollar also remains weak on currency markets. 

South African Strike Sinks Country’s Economy

A massive mining strike in South Africa is threatening the nation’s economy, central bankers say, and there seems to be no end in sight for the disruptive conflict between workers and their bosses. South Africa has obtained exceptional wealth from mining of minerals and precious metals, but that economic well-being is being strained.

Prices for the metal palladium have jumped 20 percent due to the strike. South Africa produces 40 percent of the world’s supply. Platinum supplies have also plunged. The strike has affected 80,000 workers and has dragged on since January.

Bank of England Given Power to Cap Mortgages

In an effort to prevent the economy from overheating, the British Parliament has decided to give the Bank of England the power to cap the sizes of mortgages. The intent is to discourage and reduce speculative lending that causes housing prices to inflate artificially and eventually cause a real estate bubble that can cripple the economy once it finally bursts.

Chancellor of the British Exchequer, George Osborne, continues to push for financial reforms that span beyond mortgage caps. A recent BBC report said Osborne doesn’t see the housing market as an immediate threat to the British economy, but he does see it as posing significant long-term risk.

Australia’s Central Bank Pessimistic on Short Term Employment Rate Improvement

Central Bankers in Australia do not expect any significant changes to the employment rate for at least two years. The Reserve Bank of Australia’s Assistant Governor Christopher Kent was quoted as saying “The unemployment rate is expected to remain elevated over that period.”

2013 was a stagnant year for Australian employment figures and interest rates were cut to a record low 2.5% by the Reserve Bank of Australia. Mr. Kent noted that there were some encouraging signs in the employment market, however he also noted that “The demand for labor has improved over recent months, although some of that may reflect a catch-up after a period of weak employment growth last year.”

 

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