Exit game: the exit from central bank crisis policies is accelerating

Aug. 27 (Reuters) – As the financial world waits for the Federal Reserve to begin to reverse its ultra-loose political stance, recent actions by a handful of other central banks signal that the days of accommodation in the era pandemic are already counted even as COVID-19 continues to hamper a smooth economic recovery around the world.

South Korea’s central bank on Thursday raised its benchmark interest rate by a quarter of a percentage point to mitigate growing financial stability risks posed by rising household debt, becoming the first major monetary authority in Asia to do so since the coronavirus swept through the global economy 18 months ago. Read more

Even before the rate hike in South Korea, central banks in Latin America and Eastern and Central Europe had started raising interest rates this year to fight inflation that relies on currency fluctuations. , global supply chain bottlenecks and regional labor shortages. .

And the central banks of major economies are also embarking on the swing. The Bank of Canada has already cut its bond purchases and may increase borrowing costs in 2022. hike last week in the face of an instant COVID-19 lockdown.

For its part, the Fed is working to gradually reduce its $ 120 billion in monthly asset purchases, with an announcement expected before the end of 2021, possibly as early as next month. However, a real increase in US interest rates is likely in a year or more.

Fed Chairman Jerome Powell is expected to speak later Friday on the economic outlook at the U.S. central bank’s annual summer research conference in Jackson Hole, which is being held for virtually the second year in a row. the Fed is taking action but should not give a concrete signal. Read more

THE DIFFERENCE MAKES A YEAR

When Powell spoke at last year’s conference – unveiling a new policy framework that is just starting to be tested – less than half of the 22 million U.S. jobs lost to coronavirus shutdowns in the spring of 2020 had been recovered and inflation was half that of the Fed. Target rate of 2%. The outlook outside the United States was no less bleak, with lockdowns still widespread.

The situation in the United States and other economies could hardly be more different a year later.

The US economy has more than fully recovered all of its lost output, around 9 million additional jobs have been recovered and inflation is well above target. Elsewhere, most of the world’s economies are back squarely in growth mode, albeit unevenly in many cases, as outbreaks of COVID-19 fueled by the highly contagious Delta variant trigger localized blockages.

South Korea’s economy grew 5.9% yoy in the second quarter, the fastest pace in a decade read more, and young people are gorging themselves on debt and raising concerns about financial stability from the Bank of Korea. The key export-dependent Asian nation’s industrial sector grew in July for a 10th consecutive month, even as the Delta variant slashed manufacturing output from rivals like China, Vietnam and Malaysia.

The recovery in central Europe also accelerated in the second quarter as lockdowns in the region eased. The improvement – along with a pickup in inflation – has already prompted the Czech and Hungarian central banks to raise interest rates twice this summer, the first increases in the European Union. Both are expected to produce more tightening, and Czech officials are debating whether to deliver more than the standard quarter-point increase.

While the first players have been emerging countries where inflation is often exacerbated by swings in turbulent currency markets, the gears of tightening are also starting to shift in leading economies.

RBNZ chose not to hike rates last week due to messaging complications that would have arisen from such a move alongside a hastily called lockdown after the island nation reported its first local COVID-19 infection in six months. Read more Central bank officials seem determined to raise rates before the end of the year, however.

Meanwhile, Norway’s central bank is signaling that it will not deviate from its plan for its first rate hike next month despite a recent rise in infections, putting it on track to be the top economy. developed by the Group of 10 (G10) to increase borrowing costs. .

“In the current assessment by the Outlook and Balance of Risks Committee, the key rate will most likely be raised in September,” Norges Bank Governor Oeystein Olsen said in a statement last week.

While the Fed and several other G10 banks now appear to be on track to start scaling back their pandemic adaptation measures this year, tightening measures from the Fed’s two biggest peers – the European Central Bank and the Bank of Japan – seem much more distant. Read more

Still, that doesn’t mean they don’t see some improvement in conditions even as the Delta variant spreads.

Japan was among Asian economies to see industrial sector growth last month even as COVID-19 cases hit an all-time high. read more And a key politician at the ECB sees only a limited headwind for the eurozone’s recovery because of the variant.

“I would say that we are generally not very far from what we expected in June for the whole year,” Philip Lane, chief economist at the ECB, told Reuters on Wednesday. “It’s a reasonably well balanced picture.”

Reporting by Balazs Korayi and Frank Siebelt in Frankfurt, Jason Hovet in Prague, Krisztina Than in Budapest, Leika Kihara in Tokyo, Praveen Menon in Wellington and Cynthia Kim and Joori Roh in Seoul Writing by Dan Burns Editing by Paul Simao

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