Global: Financial policy is complicated in the “last mile.”
2024-04-25
■ The IMF recommends continuing to implement tightening policies to enhance trust in financial policies to cope with inflation's re-acceleration.
■ Given the continued negative impact of financial tightening, we advocate that financial regulation and supervision should be used to deal with it in principle.
Last week, the highly significant annual meetings and spring meetings of the International Monetary Fund (IMF) and the World Bank Group took place in Washington, USA. This gathering of finance ministers, central bank governors, and senior officials of international institutions worldwide was a crucial platform for discussing the world's economic prospects, financial and fiscal stability, and economic issues, among others.
The IMF raised its forecasts for world economic growth and inflation in its latest World Economic Outlook (WEO). Considering that the sequelae of the global economy after the new crown epidemic (supply chain chaos, energy crisis, etc.) are milder than expected, they expressed confidence in realizing an economic soft landing. According to IMF estimates, although price increases in many developed countries have exceeded central bank inflation targets, some countries have a positive supply-demand (inflation gap). In contrast, others (such as the euro area and the United Kingdom) still face negative supply-demand (deflation) gaps. Therefore, it is necessary to formulate corresponding financial policy responses based on the specific conditions of each country. The IMF pointed out that the United States and Australia must continue implementing demand suppression policies to achieve price stability. Still, to avoid excessive restrictions on economic activities, the Eurozone and the United Kingdom have relatively more room to relax monetary policy if progress in suppressing inflation is confirmed. In addition, Japan has already experienced a certain degree of inflation gap, which hints at the need to shift to loose financial conditions.
In addition, the latest Global Financial Stability Report (GFSR), inflation suppression, and financial policy responses in the “last mile” were discussed. Similar to WEO, for some countries showing signs of accelerating inflation again, the IMF recommends that central banks resist investors' expectations for monetary easing to enhance confidence in policy objectives. From the perspective of financial stability, the report pointed out that investors' objections to the volatility of the money market may prompt asset price adjustments. At the same time, rising interest rates may lead to issues such as increased debt repayment and debt restructuring costs. Still, in principle, it should be adopted. Financial regulation and supervision should address these challenges, and policy rate adjustments should prioritize achieving price stability.
This understanding is considered a consensus among central banks and may become a benchmark for future policy decisions. If current economic conditions persist, countries may differ in the timing and magnitude of interest rate cuts.
■ Given the continued negative impact of financial tightening, we advocate that financial regulation and supervision should be used to deal with it in principle.
Last week, the highly significant annual meetings and spring meetings of the International Monetary Fund (IMF) and the World Bank Group took place in Washington, USA. This gathering of finance ministers, central bank governors, and senior officials of international institutions worldwide was a crucial platform for discussing the world's economic prospects, financial and fiscal stability, and economic issues, among others.
The IMF raised its forecasts for world economic growth and inflation in its latest World Economic Outlook (WEO). Considering that the sequelae of the global economy after the new crown epidemic (supply chain chaos, energy crisis, etc.) are milder than expected, they expressed confidence in realizing an economic soft landing. According to IMF estimates, although price increases in many developed countries have exceeded central bank inflation targets, some countries have a positive supply-demand (inflation gap). In contrast, others (such as the euro area and the United Kingdom) still face negative supply-demand (deflation) gaps. Therefore, it is necessary to formulate corresponding financial policy responses based on the specific conditions of each country. The IMF pointed out that the United States and Australia must continue implementing demand suppression policies to achieve price stability. Still, to avoid excessive restrictions on economic activities, the Eurozone and the United Kingdom have relatively more room to relax monetary policy if progress in suppressing inflation is confirmed. In addition, Japan has already experienced a certain degree of inflation gap, which hints at the need to shift to loose financial conditions.
In addition, the latest Global Financial Stability Report (GFSR), inflation suppression, and financial policy responses in the “last mile” were discussed. Similar to WEO, for some countries showing signs of accelerating inflation again, the IMF recommends that central banks resist investors' expectations for monetary easing to enhance confidence in policy objectives. From the perspective of financial stability, the report pointed out that investors' objections to the volatility of the money market may prompt asset price adjustments. At the same time, rising interest rates may lead to issues such as increased debt repayment and debt restructuring costs. Still, in principle, it should be adopted. Financial regulation and supervision should address these challenges, and policy rate adjustments should prioritize achieving price stability.
This understanding is considered a consensus among central banks and may become a benchmark for future policy decisions. If current economic conditions persist, countries may differ in the timing and magnitude of interest rate cuts.