Key Developments Around the World
China's Central Bank Defends Handling of Yuan Plunge
Chinese central bank officials offered a rare public defense after their unexpected move this week to devalue the yuan, saying the currency will stabilize and eventually resume its climb. People's Bank of China Vice Gov. Yi Gang said China has the financial firepower to defend the currency as needed. China guided its currency lower for a third day Thursday after briefly intervening to prop it up the day before, showing how the leadership is struggling to manage the market in largely uncharted territory for Beijing.
Dudley: China Moves Have 'Huge Implications,' But Fed Appears on Track to Raise Rates
New York Fed President William Dudley said the world would "be watching very closely" for the knock-on effects of China's moves to devalue the yuan, but it was "probably too soon to draw any conclusions" about what they would mean for the U.S. During a question-and-answer session, he declined to predict when the Fed will start raising rates, but said, "we are certainly getting nearer to that point."
China's Neighbors Feel Pain of Yuan Devaluation
The blowback from the yuan devaluation is being felt most directly in the financial markets on China's periphery, including in Indonesia and Malaysia, which are among the nations where Beijing has sought to position itself as an economic anchor to rival the U.S. Regional policy makers generally stopped short of criticism. But neither did they praise Beijing, as state leaders and central bankers did when it engineered a sudden rise in the yuan's value a decade ago.
Economic Slowdown Adds to Pressure on Chinese Officials
China released weak economic numbers that underscored Beijing's reasons for devaluing the yuan as well as the mounting pressure on the nation's leaders to find new sources of growth for the slowing economy. Growth in industrial production, fixed-asset investment and retail sales all slowed in July, China's National Bureau of Statistics reported Wednesday, just days after releasing data showing that exports fell sharply.
Greek Economy Grew in Second Quarter
Greece' economy grew unexpectedly in the second quarter on the back of a strong start to the tourism season and resilient consumption, data from the Greek statistics agency showed. Seasonally adjusted gross domestic product rose 0.8% from the previous quarter, and 1.4% on the year. Greek budget revenues fell 40% short of target in July, when the government introduced capital controls to prevent a collapse of the country's banking system, according to Finance Ministry data.
Bank of Korea Holds Rate Steady
South Korea's central bank on Thursday kept its benchmark interest rate unchanged at a record-low 1.50% for a second straight month as widely expected. The Bank of Korea's on-hold decision came despite pressure for more monetary easing after China's recent currency devaluation, a move likely to help Chinese exporters at the expense of some Korean firms. The BOK has lowered rates four times since last year, with the last cut in June.
Bank Indonesia Says Focus Is on Macroeconomic Stability
Bank Indonesia will remain focused on maintaining macroeconomic stability amid heightened global uncertainties, Governor Agus Martowardojo said. His comments suggest that Bank Indonesia isn't likely to cut interest rates soon even though economic growth fell to its lowest level in six years in the second quarter. "Our policies will be cautious and prudent," Mr. Martowardojo said, adding he expects the yuan depreciation will continue until China is sure that its currency is more competitive than the South Korean won and the Japanese yen.
U.S. Appeals Ruling in AIG Bailout Dispute
The U.S. government on Wednesday filed to appeal a judge's ruling that it violated the law when it took a controlling stake in American International Group Inc. in 2008. Judge Thomas C. Wheeler ruled in June that the government action, during the most dramatic stretch of the financial crisis, was unlawful. Still, he accepted the government's arguments that without a Federal Reserve bank's $ 85 billion loan to AIG, the company would have filed for bankruptcy and shareholders likely would have been left with nothing.
Bernanke, Paulson and Geithner Join Yale Effort to Update Crisis-Response Playbook
Former Federal Reserve Chairman Ben Bernanke and former Treasury Secretaries Henry Paulson and Timothy Geithner gathered last week in an auditorium to reflect on their response to the 2008 financial crisis. The closed-door reunion last week, which marks the trio's first joint panel discussion since they left office, is part of a new effort at Yale University to update the playbook for dealing with financial panics.
New Zealand Minister Shrugs off Worries About Yuan Devaluation
New Zealand's Finance Minister played down worries that China's devaluation of the yuan would hurt New Zealand exporters, in particular already beleaguered dairy exporters. "There will always be periods of volatility in markets, including dairy as we have seen, but also in currencies," Bill English told The Wall Street Journal. The Kiwi dollar came under significant pressure this week as the weaker yuan raised concerns on the part of exporter nations such as New Zealand.
Mexico's Central Bank Cuts 2015 Growth Forecast
In its quarterly inflation report, the Bank of Mexico slashed its growth estimate to between 1.7% and 2.5% from the previous range of 2% to 3%, putting pressure on the bank to keep interest rates low as long as possible despite a weak peso. The Bank of Mexico has kept the overnight interest rate at a record-low 3% since 2014 in an effort to lower borrowing costs and support the sluggish economy.
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