Daily Management Review

Bank for International Settlements says Faith in the Healing Power of Central Banks Faltering


Bank for International Settlements says Faith in the Healing Power of Central Banks Faltering
While voicing concerns over sub-zero interest rates and emerging economies, the Bank for International Settlements (BIS) said on Sunday that the financial markets' shaky start to the year shows they are losing faith in the "healing powers" of central banks.
The recent worries over China's economy, oil and commodity prices and some European banks had come as fundamental shifts take place in the global economy, said the Swiss-based organization, which fosters cooperation between central banks in the pursuit of monetary and financial stability.
The use of dollar-denominated debt to drive growth in emerging markets has ground to a halt on a strengthening of the currency that has also served to send U.S. companies rushing to borrow in euros even as international bank-to-bank lending is contracting for the first time in two years.
Some leading central banks are running low on ammunition to quell market volatility which is suggested by the continuing overall rise in debt and negative interest rates in large parts of Europe and Japan as the world growth remains subdued. This according ot the bankers could pose a threat to the global economy.
"The latest turbulence has hammered home the message that central banks have been overburdened for far too long post-crisis," the head of the BIS monetary and economics department, Claudio Borio, said in its first quarterly report of the year.
"Market participants have taken notice. And their confidence in central banks’ healing powers has -- probably for the first time -- been faltering. Policymakers, too, would do well to take notice," Borio added.
The different ways negative rates were being implemented by the likes of Sweden, Denmark, Switzerland, Japan and the European Central Bank are shown in a study in the BIS report. This is expected to go even deeper into negative territory on Thursday.
Instead of introducing negative rates on customers' savings, bank in Switzerland had instead increased costs on loans such as mortgages to curb losses, evidence showed.
"If negative policy rates do not feed into lending rates for households and firms, they largely lose their rationale. On the other hand, if negative policy rates are transmitted to lending rates for firms and households, then there will be knock-on effects on bank profitability unless negative rates are also imposed on deposits, raising questions as to the stability of the retail deposit base," the study said.
Another of the side-effects of the ECB's rock-bottom interest rates was also focused upon by the report.
The amount of euro-denominated debt issued by companies outside the euro bloc has increased by 15 percent-a-year. That represents some big bets on the euro remaining weak, if they neglect to put currency hedges in place.
Euro debt has acquired its own name -- the "reverse yankee" as it has become popular among U.S. companies. 48 percent of debt issued by non-financial U.S. companies comprised of the total net issuance in euros in the fourth quarter.
Six years of rising dollar-denominated debt issuance faltered after last year's EM sell-off pushed currencies lower and increased borrowing costs for both governments and companies in the emerging markets.
While outstanding international debt securities -- bonds and other types of loans -- contracted by $47 billion in the fourth quarter, international banks' lending to emerging markets fell 6 percent in the third quarter of last year.
"And this has been happening as domestic financial cycles (in emerging markets) have been maturing or turning. It is as if two waves with different frequencies came together to form a bigger and more destructive one," Borio said.

Science & Technology

Gene Editing of Human Embryo Could Find ‘Moral’ Grounds: UK’s Ethics Council

Baidu comes up with a self-driving bus

Developing countries are stepping up their own space programs

McAfee: Number of cybercrime attacks skyrocketed

RemoveDebris Mission To Clear Debris Of In Orbit Over Earth

British experts: Online gambling is dangerous

Vodafone Chooses ‘Highly Trafficked Urban’ Space As Its 5G Testing Grounds

Space To Become A Travel Destination By 2022

Dream Of Immortality Can Be Realised By 2045

Predicting A Patient’s Death Might Be Possible With Google’s Machine Learning Tool

World Politics

World & Politics

Germany asks to return € 4 thousand subsidies for the purchase of Tesla

Was Trump's visit to the UK the last straw?

Prime Minister May Could Alter Brexit Strategies, Said Ress-Mogg

Le Maire: The US refused to release France from anti-Iran sanctions

One Belt, One Road is facing difficulties around the world

Qatar to raise $ 4 billion to buy Eurofighter Typhoon jets

The UK sets to turn all cars zero-emission by 2030

Brexit Minister’s Resignation States May’s Brexit Policies Weakening The Country’s Stance