Iran’s new president has few viable economic options

Significance He promised not to borrow any more from the central bank; to consider revising the official exchange rate; and to amend the budget bill to address the mounting deficit, projected to reach USD17bn in the current fiscal year ending March 2022, according to a September report by the Majlis Research Centre. Impacts Further price increases and rising poverty will increase social tensions. The new central bank governor could impose interest cuts justified in terms of sharia-compliance. Austerity measures including reduced capital spending will weigh on slow-recovering economic growth. Some bankrupt government-owned entities will close, resulting in redundancies.

Iran’s new central bank governor faces a forex crisis

Headline IRAN: New central bank governor faces a forex crisis

Seoul's rate hike and stimulus strike a balancing act

Significance The central bank governor has signalled further tightening ahead. The economy is on track this year to exceed the 2019 level. The government has drafted a record budget that will lift public debt above 50% of GDP, to bolster the recovery and tackle inequality. Impacts The budget will pass with at most minor cuts. GDP growth this year may hit 4%, a ten-year high. As ever, strong exports will remain the chief driver of growth. A further rate hike is likely by March. Bottlenecks due to COVID-19 overseas pose a greater risk than outbreaks and countermeasures at home.

Lebanon’s possible new government would still struggle

Significance This comes as the worsening economic crisis today caused Central Bank Governor Riad Salameh to end fuel subsidies, abolishing a preferential exchange rate for imports. The EU is also threatening recalcitrant leaders with sanctions. Impacts It remains possible that Aoun and his allies in Shia movement Hezbollah may instead opt to retain the caretaker government of Hassan Diab. The reforms required for large structural loans will not happen with current elites in charge, as they would endanger patronage networks. Spontaneous riots and violence are increasingly likely as the economic collapse continues.

Were Foreign Exchange Markets Reacting Negatively to Political Events? The Case of Malaysia

This article explores the effects of political events on foreign exchange returns in Malaysia. We identify five political events in recent history, namely the 13th General Election (GE13), the imprisonment of a key opposition politician, the scandal from the 1MDB exposé, the appointment of a new Central Bank Governor and the 14th General Election (GE14). Using event studies, our findings show that the imprisonment of the opposition party leader triggered a favourable response from the foreign exchange market. However, market reactions to the 1MDB scandal were largely unfavourable. The GE13 triggered unfavourable market response, while the reverse is true for market reactions to GE14. Market response to the appointment of the new Central Bank Governor was rather positive. The Event Study is the first of its kind that examines the foreign exchange market implications of key political events in Malaysia. There are practical considerations that emanate from these findings. JEL Classification: F31, D72, D73, O38

Libya's economic track could undo political progress

Significance Unifying the budget would in effect guarantee funding to eastern Libya for the year -- a prospect unpalatable to western Libyans who suffered from eastern military commander Khalifa Haftar’s assault on Tripoli in 2019-20. However, the dialogue is also essential to unify the country and begin rebuilding. Impacts Turkey is banking on the incoming government to enhance business ties. If a new central bank governor is more friendly to Egypt, or Cyrenaica, then Turkey could lose privileges and find new trade barriers. President Mohamed Mnefi will aim to grow his own constituency in Cyrenaica, opposing Haftar and Parliament Speaker Aguila Saleh.

The Central Bank Governor and Interest Rate Setting by Committee

This article studies the role of central bank governors in monetary policy decisions taken by a committee. To carry out this analysis, we constructed a novel dataset of committee voting behaviour for six OECD countries for up to three decades. Using a range of Taylor rule specifications, we show that a change in governor significantly affects interest rate setting. We also observe systematic differences in interest rate rules based on the political party appointing the governor, with more inflation-averse policies under governors that are appointed by a right-wing political authority. We show the robustness of this result by using a wider dataset (including over 3000 observations from 12 countries). (JEL codes: E02, E5, P16)

IMF unlikely to resolve Zambia's debt conundrum

Significance While the G20's new Common Framework for Debt Treatments provides a new mechanism for debt restructuring, it also requires Zambia to convince the IMF that it has disclosed all of its obligations and has a path to debt sustainability -- something President Edgar Lungu and the ruling Patriotic Front (PF) are unwilling to do before next year’s elections. Impacts Zambia’s inability to borrow on global markets will hasten the kwacha's depreciation, which has dropped sharply against the dollar in 2020. With forex drying up, the new Lungu-aligned central bank governor is likely to come under more pressure to print kwachas before the polls. A protracted legal dispute with bondholders could make Zambia a poster child for Western campaigners demanding private-sector debt relief.

Pressure on Lebanon’s central bank governor will mount

Headline LEBANON: Pressure on central bank governor will mount