![]() ![]() "The enemy is an old enemy and is known," he added, referring to inflation. "The simple answer is one is closer than one was at the beginning, but we don't know how far central banks will have to go," Borio said about interest rates. The crisis that erupted in UK gilt markets in September also underscored that central banks could be forced to step in and intervene - in the UK's case by buying bonds even at a time when it was raising interest rates to curb inflation. The report also assessed broader recent market developments.īIS officials have been loudly calling for forceful interest rate hikes from central banks as inflation has taken hold, but this time it struck a more measured tone.Īsked whether the end of the tightening cycle may be looming next year, the head of the BIS' Monetary and Economic Department Claudio Borio said it would depend on how circumstances evolve, noting also the complexities of high debt levels and uncertainty about how sensitive borrowers now are to rising rates. Off and on-balance sheet dollar debt CLOSER ![]() "The missing dollar debt from FX swaps/forwards and currency swaps is huge," the Switzerland-based institution said, adding the lack of direct information about the scale and location of the problems was the key issue. 'non-banks' such as pension funds, dollar obligations from FX swaps are now double their on-balance sheet dollar debt, it estimated. It has grown from just over $55 trillion a decade ago, while the churn of FX swap deals was almost $5 trillion a day in April, two thirds of daily global FX turnover.įor both non-U.S. The $80 trillion-plus "hidden" debt estimate exceeds the stocks of dollar Treasury bills, repo and commercial paper combined, the BIS said. Federal Reserve to intervene with dollar swap lines. They saw funding squeezes during both the global financial crisis and again in March 2020 when the COVID-19 pandemic wrought havoc that required central banks such as the U.S. Its main warning concerned what it described as the FX swap debt "blind spot" that risked leaving policymakers in a "fog".įX swap markets, where for example a Dutch pension fund or Japanese insurer borrows dollars and lends euro or yen before later repaying them, have a history of problems. ![]() Having repeatedly urged central banks to act forcefully to dampen inflation, it struck a more measured tone and picked over crypto market troubles and September's UK bond market turmoil. The BIS, dubbed the central bank to the world's central banks, also said in its latest quarterly report that 2022's market upheaval had largely been navigated without major issues. LONDON, Dec 5 (Reuters) - Pension funds and other 'non-bank' financial firms have more than $80 trillion of hidden, off-balance sheet dollar debt in FX swaps, the Bank for International Settlements (BIS) said. ![]()
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