IMF Market Insights’ Post

An interesting paper by the #IMF on #QE and Central Bank Capital Policy: ➡️ QE has cost many central banks in the recent tightening cycle, however, central bank losses shouldn’t be considered in isolation, given the impact of QE on overall macroeconomic stability and fiscal budgets ➡️ It also suggests that with recent macroeconomic developments and the heavy reliance of central banks on unorthodox monetary policy, central banks can benefit from reviewing their capital policies (policy that guides distributing profits to the government) to a risk-based approach: provisioning based on size of risk the balance sheet is exposed to ➡️ This is in line with the importance of central bank financial autonomy in preserving its independence

📰🤩 Breaking News! 📰🤩 Central Banks Can Boost Soft Landing Hopes with Better Communication, IMF Says! 💪😮 Check out the full story here: [link](https://lnkd.in/dPZMb3T2) 💬📢 According to the International Monetary Fund (IMF), central banks can improve the chances of a smooth economic transition by enhancing their communication skills. Who knew words could be so powerful? 😱💬 ✅💪 Effective communication from central banks is key to ensuring a "soft landing" for the economy. By being clear, transparent, and proactive in their messaging, central banks can help alleviate concerns and foster stability. 🏦💼 🌐💼 The IMF emphasizes that central banks should provide timely and accurate information to the public, the financial markets, and other stakeholders. Communication channels such as press releases, speeches, and social media can all play a role in spreading the message. 📣💬 🔍💪 So, why is this important? Well, when central banks effectively communicate their policies and intentions, it helps businesses and individuals make informed decisions. This reduces uncertainty and allows for better planning and risk management. 🤔💼 💡💰 Ultimately, the goal is to achieve a "soft landing" for the economy, where growth remains stable and inflation is kept in check. By improving communication, central banks can enhance their credibility and gain the public's trust. 🌟🤝 #BreakingNews #IMF #CentralBanks #SoftLanding #CommunicationMatters #EconomicStability #Transparency #RiskManagement #InformedDecisions https://lnkd.in/dPZMb3T2

Central Banks Hold Their Breath as Economic Landscape Shifts After a relentless two years of tightening monetary policies, the world's major central banks are pausing to assess the economic landscape before charting their next move. This cautious stance comes amidst signs of slowing economic growth and easing inflation, prompting a shift in focus from taming inflation to supporting economic stability. The Bank of England held interest rates at a 15-year high last week, echoing the @Federal Reserve's decision to keep rates unchanged. This synchronized pause reflects a growing consensus among central banks that the aggressive monetary tightening cycle may have reached its peak. In New Zealand, where rate hikes began early in 2021, the tightening cycle is likely nearing its end as the economy softens. Similarly, the Bank of Canada, after raising rates to 5 percent in October, is signaling a pause to evaluate the impact of its actions. The European Central Bank (ECB), while maintaining its key rate at 4 percent, acknowledged signs of easing inflation and hinted at a potential rate cut in April. Norway and Sweden, on the other hand, face more complex decisions, balancing inflation concerns with the risk of stifling economic growth. The Reserve Bank of Australia is contemplating another rate hike in November, while Switzerland's central bank is expected to hold rates steady in December. Japan, the lone holdout dove, remains committed to its ultra-low interest rate policy but faces pressure from currency intervention to address a weakening yen. As central banks navigate this delicate balancing act, financial markets remain attentive, anticipating the timing and extent of future monetary policy adjustments. The global economic outlook, with its interplay of inflation, growth, and geopolitical tensions, will continue to shape the decisions of these powerful institutions. #Centralbanks (phot generated by AI)

Macro reckless has been warning about this for a while. Here is a brilliant article from Ken Rogoff. “When faced with economic uncertainties, central banks may not aim for high inflation, but they will likely adjust their interest-rate policies in a way that makes such an outcome more likely than a deep recession or a financial crisis.” Portfolio implications coming in a post later this week. Stay tuned. https://lnkd.in/ggyRP4ii

CENTRAL BANKS MUST REMAIN VIGILANT ALONG THE LAST MILE OF DISINFLATION During the 2024 Spring Meetings of the International Monetary Fund (IMF) and The World Bank, the IMF cautioned about potential challenges in the final stages of the fight against inflation. Tobias Adrian, director of the IMF's Monetary and Capital Markets Department, warned of possible obstacles as efforts to control inflation enter their "last mile." Despite a general trend toward disinflation, Adrian pointed out that persistent inflation in certain sectors and potential geopolitical disruptions could lead to renewed inflationary pressures. The IMF's latest Global Financial Stability Report highlights the importance of a multi-pronged approach to safeguard financial stability. It emphasizes the need for regulatory measures to strengthen the resilience of financial institutions and ensure central banks are equipped to manage liquidity crises. #IMFSpringMeetings #GlobalEconomy #InflationFight #FinancialStability #EconomicPolicy #MonetaryPolicy

🏦 Central banks management of inflation and interest rates is floundering. ✅Short term data dependency is like driving a motorbike with your eyes fixed solely on the rear view mirror. In other words it’s dangerous. ✅As highlighted in this FT article many central bankers are not in fact bankers. ✅Leading a technocratic consensus of the privileged without deep personal insight into the subject matter has encouraged group think and passivity. ✅Stagnation, low growth, persistent inflation (mostly driven by demographics) and the risk of recession may well ensue. ✅Over recent decades the 2% inflation target has proven to highly elusive but interest rates were not held at the current elevated levels whilst inflation was hovering around 2%. ✅This reveals a blind spot in current thinking and an aversion to innovation in a new environment that has changed structurally. ✅A universal mandatory provident fund (mpf) would take spending out of the system by deferring consumption. This could be done without wrecking the SME market and personal credit markets with employees motivated to save for their own futures, rather than paying sky high interest costs. ✅The extra funds saved could be funnelled by pension funds into investment and particularly the green transition. It’s time for change. #inflation #Mourant

A very well written article by Kenneth Rogoff about the challenges being faced by central banks in the current economic uncertainty. While central bank independence is sacrosanct and critical in keeping inflation expectations under control, it is a bitter truth that post-pandemic fiscal policy had a much bigger impact on inflation and given higher public debt and deficit, governments can and will influence monetary policy in the long run. That’s why the risk of another inflationary cycle in the near future cannot be ignored by both the policy makers and the markets. He sums it up brilliantly as follows: “While the post-pandemic period has been characterized by heightened uncertainty, making it difficult to predict macroeconomic trends, this is precisely when central banks tend to be more inclined to risk high inflation rather than a massive recession. After all, people may not like inflation, but they dislike deep recessions and financial crises even more.” “Central bankers understand that as soon as markets doubt their intentions, interest rates will quickly reflect rising inflation expectations. Nevertheless, this realization is unlikely to help them resist pressures from politicians, who often focus only on the next election and may prioritize other issues over stabilizing short-term inflation.” #centralbanks #monetarypolicy #fiscalpolicy #federalreseve #ecb #boe #centralbankindependence #inflation #inflationexpectations #politics

Financial News Quote on Quote: " Central banks have shown they can take forceful action to head off the most dramatic increase in inflation in a generation. They took steps to protect the purchasing power of people and firms. Although the last mile to return to price stability is not yet complete, the end is well in sight." "Now is not the time to let down our guard. Inflation is lower, yet not low enough in some places. Upsets can come in the final minutes of any game. Compared to other prices, the cost of services and take-home pay are both lagging pre-pandemic trends and a rapid catch-up could see renewed upward pressure on inflation. Central banks must stay the course." "Exceptionally strong and prolonged monetary easing aimed at stimulating too-low inflation becomes less effective the longer it lasts and can generate unwelcome side effects. These include a build-up of debt , now at historic peaks, and distortions to markets and investments. It also narrows central banks’ room for policy manoeuvres, making it harder to exit from stimulus measures and detangle central bank and government policies." "Policies work better as part of a coherent whole. Even now, with central banks still trying to ensure inflation stays under control, we see that around the world, budget giveaways brought in during the pandemic are at risk of acting at cross-purposes by stimulating the economy and stoking inflation." "In the long run, structural reforms are key to sustainably lift the standard of living, improve economic well-being and give people a sense of security. This means taking lasting measures such as promoting competition, enhancing flexibility and spurring innovation. Scarce public funds should support the economy’s adjustment to new realities such as climate and technological change, including the artificial intelligence revolution . Only a solid foundation allows us to build for the future." https://lnkd.in/gkCmcHiS

The force awakens in fixed income: Central banks across the globe are approaching the conclusion of one of the most aggressive tightening cycles on record. This marks a significant milestone for fixed income markets, and a golden entry point for investment. Here, our fixed income team discuss the potential implications for returns in a post-hiking cycle world.  https://lnkd.in/eKbj8p8j