The G20 finance Ministers and Central Bank Governors meeting called for policy coordination to avoid downside risks and negative spillovers

2022-07-02 0 By

The G20 Finance Ministers and Central Bank Governors Meeting was held online and offline in Jakarta, Indonesia from February 17 to 18.Under the theme “Recover Together, Recover Stronger”, the conference discussed the global economic and health situation, supporting low-income countries to cope with the impact of COVID-19, sustainable finance, financial sector reform, international taxation and other issues throughout the year.A communique was issued after the meeting.Indonesian President Joko Widowo said in his speech on Monday that the global economy is struggling to recover from COVID-19 and that no country is immune.Countries need to come together to deal with rising inflation, food shortages and price increases, container shortages and other logistical disruptions.Joko stressed the need to work together to make global economic growth more inclusive and sustainable.To address these challenges, the meeting will promote the synergy of fiscal and monetary policies.Chinese Finance Minister Liu Kun put forward three proposals in his speech on The 17th. First, unity and cooperation to defeat the epidemic.China is ready to work with other parties to advance the reform of health governance system under the WHO framework and jointly build a stronger global health governance architecture.Second, we need to strengthen macro policy coordination.Major developed countries should adopt responsible macroeconomic policies and properly control their spillover effects.Third, we need to strengthen global development.China is ready to strengthen policy coordination and practical cooperation with all parties to promote common development and make sure no country is left behind.Supply disruptions, supply-demand mismatching and rising commodity prices, including energy, have exacerbated inflationary pressures in some countries and pose potential risks to the global economic outlook, according to a communique released on Monday.The communique said the resilience of the global supply chain will continue to be strengthened.Zeng Gang, director of the banking research office of the Institute of Finance and Banking of the Chinese Academy of Social Sciences, told the 21st Century Business Herald that price increases mainly take into account the producer price index (PPI) and consumer price index (CPI).Measured from these two indicators, there are comprehensive and structural differences in the inflationary pressures in different countries.He analyzed that PPI mainly depends on the prices of bulk commodities and basic commodities.Previously, PPI in all countries showed a rising trend due to various factors, such as global monetary easing policy, supply chain disruption caused by the impact of COVID-19, and low carbon transition to some extent hitting traditional energy.In terms of CPI, countries vary widely.As for the US, CPI continues to hit record highs, inflationary pressure is widespread, and the economy is facing the risk of overheating.In The case of China, the CPI actually changed little due to factors such as falling pork prices and the fact that the consumer side has not yet achieved a strong and sustainable recovery from the impact of the epidemic.The global epidemic prevention and control has entered a new stage.He noted that the economic disruption of the epidemic is showing signs of abating, and disruptions in the global supply chain, especially in transportation, are expected to ease gradually.With the decline of supply chain costs, the pressure on PPI to continue rising is expected to gradually weaken in the coming period.In addition, as more countries embark on a cycle of interest rate hikes, the reduction in liquidity supply will dampen demand and commodity prices are likely to ease somewhat, easing inflationary pressures.Monetary policy may continue to diverge Yi Gang, governor of the People’s Bank of China, spoke via video link at the G20 finance Ministers and Central Bank Governors meeting.Yi gang introduced China’s economic and financial situation, saying that China’s inflation is generally moderate, its monetary policy is flexible, precise, reasonable and moderate, and the quality and efficiency of serving the real economy is improving.The People’s Bank of China will keep its prudent monetary policy flexible and appropriate, step up cross-cycle adjustment, and promote high-quality economic development.Earlier, the Central Economic Work Conference made it clear that in 2022, China’s economic work will give top priority to ensuring stability and make progress while maintaining stability.Zeng gang analyzed that the People’s Bank of China’s monetary policy in the first half of the year is still mainly loose, aiming to reduce the financing cost of the real economy through the increase of financial aggregate, further optimize the credit structure, cope with economic downward pressure, promote stable investment and consumption.Monetary policy is now diverging around the world based on different inflationary pressures and domestic economic conditions.Brazil, Peru and other Latin American countries have repeatedly raised interest rates.The UK has been the first advanced economy to raise interest rates.And the Federal Reserve rate hike expectations are also heating up, the market has increased the rate of interest rate expectations, in March, the first rate hike of 25 basis points or 50 basis points is still under discussion.”Given the differences in the progress and path of economic recovery under the impact of COVID-19, global monetary policy is likely to diverge further in the coming period.”Zeng gang said that for the US, the direction of monetary policy is relatively clear in the face of inflationary pressure, and it is expected to raise interest rates in the first quarter, but there will be concerns about the intensity and speed of monetary policy tightening, so as not to cause a big impact on the financial market.He analyzed that objectively, the Fed’s continuous interest rate hike may have several impacts on the US. First, the US capital market will come under some pressure, which may trigger new risks and affect financial stability.Second, the SCALE of us government debt continued to expand in response to the epidemic.And higher interest rates mean higher government debt costs, which could hit the long-term fiscal sustainability of the US.Moreover, lower demand from higher interest rates could lead to lower economic growth and political risk.What will be the spillover effects of Fed monetary policy?Zeng gang believes that the Fed’s rate hike may lead to increased exchange rate risks and financial market volatility in emerging countries with weak economic foundation and higher capital openness, but the impact on China is limited.He explained that the Fed’s rate hike would objectively increase pressure on China’s exchange rate.But even if the Fed raises rates, China’s financial markets are still attractive, given the economic growth and bond spreads between China and the US.Moreover, China’s foreign exchange capital controls to some extent build a “separation wall” for the monetary policy transmission from other countries to China.Therefore, China’s monetary policy can be “self-centered”, and the Federal Reserve’s monetary policy has little impact on China.Southwest university of finance and global financial strategy Fang Mingze tells a reporter, director of the laboratory, given the dollar’s status as a world currency, the federal reserve to raise interest rates could trigger a dollar revaluation of monetary market and bond market prices, leading to the global lending and bond prices revaluation, could lead to some emerging economies currency mismatch risk, therefore,Relevant countries need to advance measures in exchange rates, foreign debt and other areas.Chinese Minister of Finance Liu Kun attended the meeting via video and spoke.With regard to the global economy, he proposed to strengthen macro policy coordination, and major developed countries should adopt responsible macroeconomic policies and properly control the spillover effects of policies.Members pledged to safeguard financial stability and long-term sustainability, the communique said.When formulating policies to support economic recovery, we need to ensure that our plans are well planned and communicated in light of specific circumstances to avoid downside risks and negative spillovers.Due to differences in epidemic prevention and control, short-term economic environment and inflationary pressure, countries also have significant differences in monetary policy stances.Shirakawa, points out that with the federal reserve to raise interest rates as well as the possible spillover effects, the policy coordination and communication among countries is very important, including the developed economies, emerging markets and developing countries, between the monetary policy coordination within the Asian region and even start the cooperation mechanism, prevention of one country or regional financial crisis.In Zeng’s view, in a highly internationalized environment, inconsistent or unsynchronized monetary policies of different countries will inevitably lead to mutual spillovers, mutual hedging and even mutual interference.And in the future, if both interest rate hikes are in the cycle, we also need to consider the magnified impact of monetary policy on the market.In view of this, countries should clarify their own monetary policy positions and strengthen communication and coordination to better maintain the stability of global financial markets.In addition, he believes that it is difficult to assess the timing and pace of the withdrawal of support policies of various countries, and it is necessary to consider various factors such as keeping the economic operation within a reasonable range, controlling the risk of excessive accumulation of financial bubbles and spillover effects caused by the implementation process. The whole process is complicated and needs to be explored in practice.In the medium to long term, however, withdrawal of stimulus policies is probably inevitable.As far as China is concerned, monetary policy will gradually tighten as the impact of the epidemic recedes and the goal of stable growth is achieved.For more information, please download the 21 Finance APP