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Weekahead: Central banks head for Portuguese hills

Sunday, June 25, 2017 - 01:54

The cool shade of the hills above Lisbon will offer leading central bankers an escape from the summer heat in the coming week, but there is little they can do to get away from their differing monetary policy conundrums. Ciara Lee reports on the key events of the coming week.

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U.S banks are flying high. The 34 largest have all cleared the first stage of an annual stress test. Banks including JPMorgan Chase and Bank of America would suffer 383 billion dollars of loan losses in the Fed's most severe scenario. That's an improvement on last year. The tests come almost 10 years to the day since the start of the financial crisis. And some still question the industry's resiliance. (SOUNDBITE) (English) INDEPENDENT MARKET ANALYST, JEREMY BATSTONE-CARR, SAYING: "This suggests to me that the banks are getting better at passing these tests. It doesn't suggest to me that the sector is out of the woods. Now if you look at the sort of the terms on which the tests were conducted they appear extremely rigorous. But I don't think it's necessarily the time for the regulators to take their eye off the ball." That includes the watchful eye of the world's central banks, many of which are heading to Portugal this week. As the crisis slowly fades from the rear-view mirror, some are still struggling to decide how and when they can begin returning their monetary policy settings to normal. (SOUNDBITE) (English) INDEPENDENT MARKET ANALYST, JEREMY BATSTONE-CARR, SAYING: "I absolutely believe that the ECB and the Bank of Japan will be mindful of the Fed's tapering. I think that they will insist that local conditions will dominate the decision on whether to taper or not." The Bank of England meanwhile, is caught on one hand between rising inflation and a 30-year high in factory orders... And on the other, on weak wages, political instability and Brexit. It's a different story though for the Bank of Japan. After years of snapping up bonds, it holds assets equivalent to more than 90 percent of the country's GDP With Japan's economy showing signs of recovery, talk is now emerging about how the bank can begin an exit strategy.