Gopinat of the International Monetary Fund said emerging economies cannot afford the return of “shrinking panic”


Federal Reserve Update

The chief economist of the International Monetary Fund warned that emerging markets could not “endure” the recurrence of the 2013 “shrink panic” market chaos, when the Fed hinted that it would withdraw from stimulus measures earlier than expected, triggering a surge in global borrowing costs.

In an interview with the Financial Times, Gita Gopinath expressed a cautious attitude as the Fed prepares to withdraw support for the pandemic, highlighting the economic pressure faced by low- and middle-income countries. Suffer disproportionately From the coronavirus crisis. She also warned that if inflation becomes a more harmful problem in the United States and forces a sudden tightening of monetary policy, there may be consequences.

“[Emerging markets] They are facing greater headwinds,” she said. “They are being hit in many different ways, and that’s why they can’t afford to lose their tempers in the financial markets from the major central banks. “

Prior to Gopinath’s remarks, Fed Chairman Jay Powell gave a speech at a virtual seminar of central bank governor Jackson Hole on Friday, implying that the US economy will be sufficient for the Fed. Start call back Its $120 billion asset purchase plan this year.

In the past five months, with the launch of the Covid-19 vaccination campaign, commercial activities have increased dramatically.US Consumer price Driven by strong demand and supply chain bottlenecks leading to severe shortages of certain commodities, prices have also soared.

Although the Fed has long stated that inflationary pressures will subside over time, the rate of increase in inflationary pressures is higher than most economists expected. But policymakers have become more comfortable with the risks that they may last longer, especially as the more contagious variant of the Delta coronavirus is fueling an alarming increase in global new coronavirus cases.

“Many of the problems we face, even in terms of inflation and supply bottlenecks, are related to the pandemic that we are raging in different parts of the world,” Gopinath said. If higher inflation persists, “this may affect inflation expectations and then have self-fulfilling characteristics.”

“We are worried about a situation where the inflation rate is much higher than expected, which will require the United States to normalize monetary policy more quickly,” she added.

The International Monetary Fund calculated in July that by 2025, the global gross domestic product may fall by 4.5 trillion US dollars. This is what Gopinath said is the “double whammy” of the new wave of infections in emerging markets. Efforts have been made to obtain vaccines and the normalization of “large-scale” US monetary policy, although this is not the basic situation of the fund.

Morris Obstfeld, former chief economist of the International Monetary Fund and professor at the University of California, Berkeley, believes that the damage to low- and middle-income countries will be particularly serious given the rise in debt levels since the pandemic began. .

According to data from the Institute of International Finance, the average government debt of large emerging economies will rise from 52.2% of GDP to 60.5% in 2020. This was the largest surge on record and helped countries survive the pandemic.

Many people are in better shape today than they were when they lost their temper in 2013. Larger foreign exchange reserves and better budget and external balance will help strengthen their defenses, but huge shocks may penetrate it.

He said: “If they are hit by the sudden increase in dollar funding conditions and the reversal of capital flows, then in the ongoing pandemic, this could be devastating.”

According to IIF data, in the past nine months of 2020, more than $360 billion has flowed into emerging market stocks and bonds. Although the rate of inflows has slowed since then, many countries are still extremely vulnerable to rapid changes in investor sentiment.

Higher inflation has forced several of these countries to raise interest rates — including Brazil, Hungary, Mexico, and Russia — but further tightening may be needed to combat capital flight and currency devaluation, causing more economic pain.

Gopinath stated that central bank governors need to provide “super clear communication” frequently About their policy path forward ——She said Powell was very effective.

“One of the problems [then-chair Ben] Bernanke’s statement in 2013 was not to say that quantitative easing will begin to relax, but to be confused with the expectation that interest rates will begin to rise faster than expected,” she said. “This time, they have made it very clear. Will start to reduce production first. .. Then they will start raising interest rates. “


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