This article is from WeChat official account:Suning Institute of Finance (ID: SIF-2015)< / span> , author: Tao Jin (Su Ning, deputy director of the financial Research Institute of macroeconomic Research Center), editor: Chen Xia, Ding Yuan, head map from: “wolf of Wall Street”
With the acceleration of global vaccination, global inflation and its expectations continue to rise, Turkey, Brazil, Russia and other countries have raised interest rates, and the market’s expectations of India, Malaysia, Thailand and other countries to raise interest rates are also rising. A new wave of interest rate hikes in emerging market countries seems to be coming. What impact will this have on the global economic recovery? How will China respond?
Why do you raise interest rates?
Inflation and currency depreciation pressures in emerging economies have long been greater than in developed economies.
This is because the economic structure of emerging economies is often relatively single, or concentrated in upstream raw materials and energy, or concentrated in the middle of the “smiling curve” of the industrial chain, and the industrial system is incomplete, even in certain fields. Rising prices can also cause all-round inflation in the country.
At the same time, these countries often implement a completely open capital account and a floating exchange rate system, and global inflation trends can often be quickly transmitted to their own countries through capital flows.
In addition, the economic growth rate of emerging economies tends to be faster than that of developed countries. Behind this is the generally faster growth of demand, which in itself also means greater pressure for price increases.
The supply and demand gap after the epidemic has exacerbated this phenomenon.
First of all, the economic recovery is superimposed on the relatively slow recovery of supply capacity, which has led to a gap in supply and demand and rising prices of a variety of commodities. Inflation, especially the rise in prices of agricultural products such as grains (resulting in a sharp rise in the cost of living of residents), is the pressure on emerging markets to raise interest rates The main reason.
Inflation levels in Turkey, Brazil, and Russia, which have already raised interest rates, all reached a staged high in February, with Turkey having the most serious level of inflation.
In February, Turkey’s CPI reached 15.61% year-on-year, which is not only the highest level since August 2019, but its absolute level is also at a very high level in various emerging markets;
The Russian CPI in February reached 5.67% year-on-year, setting a new high since December 2016;
In February, Brazil’s broad consumer price index (IPCA) reached 5.2% year-on-year, the highest level since February 2017. High inflation has affected the cost of living of residents, triggering the central bank to raise interest rates.
Secondly, preventing a large outflow of foreign capital is an important purpose of raising interest rates in emerging economies. In 2020, the world’s major economies have adopted extremely loose monetary policies and very proactive fiscal policies, which have released a large amount of liquidity around the world. In addition to flowing into the capital market and real estate, these funds have also entered relatively higher interest rates. Earning interest income in emerging economies.
However, when the U.S. epidemic improves and the economy recovers, the return of capital to the U.S. and the expected increase in the return have led to growing concerns about capital outflow from emerging economies. In fact, more and more new economies have already seen obvious capital outflows.
Take Turkey as an example. Since March 2020, its capital and financial project capital has experienced large net outflows in a volatile manner. Since October 2020, net outflows for four consecutive months have exceeded 14.4 billion U.S. dollars.
Again, inflation is getting higher and higher, and capital outflows are increasing, all of which are increasing the pressure of currency depreciation in emerging economies. It has become a helpless move to raise interest rates to maintain the spread with developed countries such as the United States. . From the chart below, with the exception of Turkey, the exchange rates of Brazil and Russia have not risen significantly, but domestic inflation and capital outflow pressures have forced the central banks of the two countries to raise interest rates in advance to avoid following Turkey’s footsteps.
Will a wave of interest rate hikes come?
At present, the market is worried that interest rate hikes will further spread to other emerging economies, and even lead to interest rate hikes in advanced economies. There is indeed such a phenomenon in history: During the economic recovery period, resource countries usually take the lead in inflationary pressures and enter the interest rate hike cycle; then the improvement in global demand brings the economy of manufacturing countries to recovery and enters the interest rate hike cycle; The final demand country usually enters the interest rate hike cycle last.
The market consensus is that global inflation will continue. One difference between this recovery process and the recovery process after the crisis in history is that the previous crises have mainly impacted demand, and the supply capacity has little impact. During the recovery process, the demand has rebounded, and the supply capacity has always been higher than the demand. The inflation trend is not obvious; the epidemic has impacted both supply and demand, and the process of demand recovery is not necessarily accompanied by a rebound in supply, which in turn leads to an obvious inflation trend.
Therefore, it is necessary to pay close attention to the complex interaction between the global economic recovery and the repeated epidemics, and the growth rate of demand is still faster than the rate of supply recovery.
At the same time, the liquidity in the hands of the residents of the United States and other countries for printing and distributing money is entering the real economy, pushing up inflation. What is certain is that global inflation expectations have become a reality, inflationary pressures in more emerging economies will increase, and the pressure to raise interest rates will also increase.
However, the continuity of the interest rate hike in emerging economies needs further observation. The opposite of the inflation problem caused by supply and demand is the uncertainty in the repair of supply capacity. Once the supply can be continuously repaired, the inflation trend may be restricted to a certain extent. With the gradual recovery of global supply capacity from upstream to downstream, inflationary pressures may be temporary.
In addition, the problems of inflation and currency devaluation in Turkey and other emerging economies have existed to varying degrees for a long time, and their impact on global proliferation has been limited in history, and the high probability will not be an exception this time.
What is the impact on China’s economy?
The interest rate hike by the central banks of emerging economies and some small economies is of little significance to domestic policies. The problems of inflation and currency depreciation in emerging economies have existed in varying degrees for a long time. The level of interest rates and their rise are generally higher than those of developed countries. Quite a few countries are also higher than China. Generally speaking, this interest rate increase may also affect the world and China. The impact of the diffusion is limited.
Major economies such as the United States and Europe will maintain a state of extreme easing for a period of time to come. More importantly, China is mainly me, and to a large extent, it has already normalized its monetary policy. The first is that the liquidity policy has gradually returned to normal from May 2020 to August, and the second is that the credit policy has strengthened window guidance since the beginning of the year. Although the credit expansion rate will not decrease from January to February, it is expected to continue to stabilize in the future .
Therefore, in general, there is no need for the People’s Bank of China to raise interest rates along with other countries in the short term.
Under the situation of dual cycles, self-centeredness, and sufficient reserve of policy tools, China’s monetary policy does not need to adopt a follow-up strategy. Instead, it needs to make cross-cyclical adjustments in response to China’s price changes, employment conditions, and potential growth targets. At the same time Adopt structural policies to adjust economic operations flexibly and accurately.
But it’s worth noting that this year’s CPI year-on-yearIt is difficult to exceed 3%, and it will not affect the general direction of monetary policy, but the pressure of rising prices in the upper and middle reaches is relatively high. The continuous appreciation of the renminbi in the early period hindered the transmission of international commodity prices to the country. At the same time, the increase in oil prices is limited, and the large increase has limited impact on the PPI with oil prices as the core indicator.
But this situation will reverse in the future: First, the appreciation of the renminbi has been suspended, and second, oil prices have generally been rising recently. Therefore, the PPI year-on-year is likely to rise significantly since May, and may even exceed 6%.
If the central bank interprets this as a partial overheating of the industrial sector, although it is almost impossible to raise policy interest rates, it does not rule out increasing the adjustment of credit policies and guiding banks to slow down the pace of credit supply. Since consumer demand is not sensitive to monetary policy, the central bank will not vote against it. In other words, the central bank will not worry that consumption will be significantly reduced due to policy tightening.
This article is from WeChat official account:Suning Institute of Finance (ID: SIF-2015)< / span> , author: Tao Jin