Liz Truss, the favourite in the race to succeed Boris Johnson as prime minister, has laid the blame for inflation at the door of the Bank of England, saying it must do more to fight price rises.
Truss also said she would change the Bank of England’s mandate if she becomes prime minister, to ensure that the central bank fights inflation more efficiently, but gave no details about what that change would entail.
With consumer price inflation hitting a 40-year high of 9.4% in June, you may think she has a point. The Bank of England is behind the curve, but when it comes to changing the central bank’s mandate, I really hope Liz Truss is lying. If she is not, then we should all be very afraid.
Central banks are again under the limelight. With Mark Carney’s departure as governor of the Bank of England next month, Boris Johnson could try to seize the opportunity to curtail the central bank’s independence.
This should not come as a surprise. Already, Johnson’s soulmate from across the ocean, Donald Trump, has been making noises about the Federal Reserve being too independent (or rather: insubordinate) for his liking.
So, if these two authoritarian populists go for central banks, what are their chances of bringing them under their rule?
It is becoming increasingly difficult for central banks to surprise the markets with good news. No matter how dovish they are, investors expect them to be even more dovish still. This financial repression has facilitated the rise of populist politicians, who threaten to bring the end of central banks’ independence.
January was an extraordinarily positive month in the markets for virtually all assets, after a horrible 2018 — and it’s all due to the Fed. The US central bank executed a massive U-turn in its monetary policy and, while many observers like to point to low inflation as the reason for the Fed’s aborted effort to normalise monetary policy, something more sinister is behind it.
I know the chances of anyone paying attention to this article are slim, but it’s worth putting it out there nevertheless. If you are stockpiling to prepare for Brexit, as it increasingly is the fashion, you need to stop. You are doing yourself and the others around you more harm than good.
As the major central banks are slowly retreating from their policy of asset purchases, we will probably witness some of the side effects of this withdrawal.
Warren Buffett famously said that “Only when the tide goes out do you discover who’s been swimming naked.” The tide is going out only slowly, but we are beginning to see, at least in the UK, the damage the ultra loose monetary policy has done.
The Indian central bank’s upcoming policy review this week, a month after demonetization, holds ample suspense for a possible interest rate cut.
The demonetization of Rs 500/1,000 currency notes since November 8 has led to a rapid inflow of deposits in banks. Brought in to fight black market money and counterfeits, the amount in circulation in these notes was estimated at around Rs 14 trillion, i.e. about 86% of the total.
Citizens were asked to deposit them in their banks, leading to the deposit surge. The Hindu, a leading daily, said ~Rs 8.5 trillion had been deposited by end November and estimated it to reach between Rs 10-11 trillion by early-December.