Federal Reserve Chairman Ben Bernanke defended easy money policies in
advanced economies against the charge they are overheating emerging
markets, saying factors such as exchange rate rigidity are also to
blame.Speaking ahead of a diplomatic summit in Paris that will
include many critics of the Fed’s aggressive bond buying program,
Bernanke acknowledged that strong capital flows from advanced economies
to emerging markets may be having negative spillover effects. "Capital
flows are once again posing some notable challenges for international
macroeconomic and financial stability," he said in remarks prepared for
delivery to a Banque de France event in Paris before meetings of the
finance ministers and central bankers of the Group of 20 leading
economies. However, he said that although policy-makers in the
emerging markets clearly face challenges, such concerns should be put
into perspective. Bernanke’s own unorthodox US$600 billion
bond buying initiative launched in November has stirred harsh criticism
from countries around the world, and he has used international venues to
defend it before. U.S. quantitative easing measures have been
attacked for driving down the value of the dollar, hurting emerging
economy exports and inflating asset bubbles, and the Fed chairman can
expect to hear about it from his counterparts at the summit. Bernanke
did not mention inflation concerns directly except to say that strong
demand in emerging markets is contributing to global commodity price
increases, something which affects the most advanced economies as well. Gradually
smoothing global imbalances of trade and investment is a top priority
for G20 officials. Officials have set themselves the goal of drawing up a
list of indicators to measure imbalances, with the aim of making growth
more stable and less prone to cycles of boom and bust. In
comments similar to ones he has made in the past, the Fed chairman said
faster growth in emerging markets is one factor driving strong capital
flows into those economies. Furthermore, emerging market policy-makers
have tools at their disposal — including exchange rate adjustment — to
prevent overheating, he said. The argument that greater currency
flexibility is necessary to right imbalances is a recurring theme for
U.S. officials who have persistently sought to pressure China to allow
its yuan currency to float more freely against the dollar. U.S.
officials say that by keeping the yuan weak, the Chinese government is
supporting an export-led economy that leads to its large trade surplus
with the United States. Washington wants to keep the spotlight on the yuan at the G20. "The
maintenance of undervalued currencies by some countries has contributed
to a pattern of global spending that is unbalanced and unsustainable,"
Bernanke said. Advanced economies are also experiencing the ill
effects of strong capital flows into emerging economies in the form of
higher prices, Bernanke argued. "Spillovers can go both ways.
For example, resurgent demand in emerging markets has contributed
significantly to the sharp recent run-up in global commodity prices," he
said. Higher prices for food and energy have raised worries
about inflation around the world and are prompting many central bankers
to consider tightening financial conditions even as some economic
recoveries remain shaky. China and India have already raised interest
rates to combat inflation, and Britain is under pressure to do the same.
Not all of Bernanke’s recommendations were directed at his
international counterparts. Countries with persistently high trade
deficits must increase saving and put their fiscal houses in order, he
said, a reference to record U.S. budget deficits.
" CAD- CPI rises slightly for the month of January .."..
" surging commodity costs have put central banks on inflation alert.....
Canada's annual inflation rate slipped to a relatively tame 2.3% in
January, bucking a global trend which has seen several major nations
struggle to keep rising prices under control. January's rate,
which matched market expectations, compares to 2.4% in December. It also
means the Bank of Canada will be under no immediate pressure to raise
interest rates on March 1. Statistics Canada said on Friday
that energy prices had risen 9.0% in the 12 months to January following a
10.5% year-on-year rise in December. Gasoline prices advanced by 13.0%
on the year, the same rate seen in December. Overall, prices were up by 0.3% from December. The year-on-year core rate, which is closely watched by the Bank of Canada, slipped to 1.4% from 1.5% in December.
Friday's figures do little to challenge market expectations that the
central bank, which targets 2% inflation, will hold rates steady until
at least May. "From the (Bank of Canada) standpoint, nothing
was priced in anyways for the March meeting. Growth is likely in the
near term to be more important to them than current inflation numbers,"
said Mark Chandler, head of fixed income and currency strategy at RBC
Capital Markets. Overnight index swaps, which trade based on
expectations for the key central bank rate, showed investors see a
99.59% probability rates will stay on hold at the Bank of Canada's next
rate announcement on March 1. The Canadian dollar edged higher
C$0.9825 to the U.S. dollar, or $1.0178, from around C$0.9842 to the
U.S. dollar, or $1.0161, just ahead of the data publication.
The Canadian data followed a U.S. report on Thursday which showed core
consumer prices there rose at the quickest pace in 15 months in January,
suggesting a long spell of slowing inflation was coming to an end.
Canada's modest inflation picture also compares favorably to higher
growth emerging economies, where surging commodity costs have put
central banks on inflation alert. China's central bank on
Friday raised lenders' required reserves by 50 basis points, the second
such increase this year as it tries to curb stubborn inflation.
South Africa, India and Russia are also concerned about rising prices,
while food inflation has also been cited as a factor in the political
unrest in the Middle East. A report on Tuesday showed
inflation in Britain jumped to twice the Bank of England's target in
January, prompting BoE Governor Mervyn King to acknowledge that interest
rates might rise more rapidly than economists had expected.
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