Gopinath sees Rocky Ride on Dollar, No Plaza 2.0

(Bloomberg) – The current leader of the Group of 20 has called monetary policy through interest rate changes a “broad-spectrum antibiotic” that is effective in curing inflation but has side effects.

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“It’s like a real medicine to cure inflation, but it has a huge negative excess”, not only for large countries like the United States where the Federal Reserve is aggressively raising interest rates, but also for d other countries, said Indonesian Finance Minister Sri Mulyani Indrawati. “It’s getting so strong that the drug to curb inflation can have huge side effects for many other countries.”

Speaking at an event at the Institute of International Finance on Friday, she urged developing and emerging countries to do all they can to strengthen their national economies.

“Try to create a cushion,” as the momentum currently putting pressure on economies will intensify in 2023, Indrawati said. Coordinating fiscal and monetary policy with other facets such as trade and investment policy “will create more credibility and efficiency in managing” the situation “without worsening inflation”, he said. she declared.

The IIF and International Monetary Fund are holding their annual meetings this week, bringing together the heads of global finance and central banks – along with their development and banking counterparts – in the US capital at a fragile time for the economy. world.

Even after this year’s misery – soaring inflation, war in Ukraine, slowdown in China – Bloomberg Economics expects next year to be even worse. The IMF on Tuesday revised down its forecast for global growth in 2023 and said policies to tame high inflation could add risks to the global economy. Even President Joe Biden said this week that the United States, the world’s largest economy, could suffer a “very mild” recession.

(all Eastern times)

BNP Paribas boss sees EU businesses adjusting to inflation (10.45am)

The economic situation in Europe is a “challenge, not a crisis”, according to the president of the French lender BNP Paribas SA.

As inflation increases pressure on businesses, they are “working very hard to adapt” to rising prices and interest rates, Jean Lemierre said during a panel at the conference. ‘Institute of International Finance. “They’re going through tough months, it’s tough, but they’ll get through it.” Meanwhile, European Central Bank policymakers are “doing what they have to do,” said Lemierre, a former member of the European Monetary Committee.

China is hurting itself with Zero Covid, says Rajan (10:30 a.m.)

The Chinese are “hurting themselves” with their Zero Covid policy, said former Indian central bank governor Raghuram Rajan.

“The question is how do they move on, given that he is so closely associated with President Xi,” he said in an interview with Bloomberg Television. “The real question is: what happens with China after this? How do they find a way out or do they buy western vaccines and start vaccinating the population with effective vaccines? This is the real question for them as they cannot continue this strategy indefinitely.

While many large emerging markets have accumulated foreign exchange reserves in the era of easy money, smaller developing countries are “on the brink” of defaulting in the face of rising food and oil prices. energy, Rajan also said. “They just can’t service their debt and help their people at the same time,” he said.

Gopinath sees Rocky Ride on Dollar, No Plaza 2.0 (9:14)

Nations are on the verge of adjusting to the strength of the dollar, the first deputy managing director of the International Monetary Fund has said, adding that she does not see a new monetary plan along the lines of the 1985 Plaza agreement .

“There are fundamentals that are driving these big moves,” Gita Gopinath told Bloomberg Television on Friday, citing tighter monetary policy and high energy prices. “It’s going to be a bit difficult for countries, but they will have to adapt to it, so they will have to use their own monetary policy tools to be able to limit inflation.”

The U.S. currency has soared nearly 15% this year, en route to the biggest gain since the early 1980s. currencies, prompting the IMF to warn of the need to be cautious and preserve resources in case of potentially worse turmoil to come.

Gopinath said she does not foresee a repeat of actions in 1985, when the world’s biggest industrial powers came together to rein in the dollar in what became known as the Plaza Accord.

“That’s not where we are. Frankly, when the Plaza deal worked, it wasn’t just because there were currency announcements, but there were more signals of coordination of other types of fiscal and monetary policies. So no, I don’t think we’ll have a Plaza Accord anytime soon.

IMF urges preservation of foreign exchange reserves amid surging dollar (8:36 a.m.)

According to the International Monetary Fund, governments should hold onto their currency holdings for potentially worse episodes of capital outflows and market volatility in the future, even if the dollar soars.

The warning came in a blog post by the IMF’s Gopinath and the fund’s chief economist, Pierre-Olivier Gourinchas, who urged governments to reinstate swap lines with central banks in advanced economies or profit precautionary lines from the IMF to ensure they have liquidity. While temporary interventions may be appropriate, further reforms will be needed, the duo said.

“Those with large foreign currency debts should reduce exchange rate mismatches using capital flow management or macroprudential policies, in addition to debt management operations to smooth repayment profiles,” the authors wrote. IMF officials. About half of all cross-border loans and international debt securities are denominated in dollars, they wrote.

IMF urges African oil producers to prepare for a ‘shock-prone world’ (7:10 a.m.)

Oil producers in sub-Saharan Africa should target fiscal surpluses to protect against large price shocks, reduce their debt risks and manage the transition from fossil fuels, according to the International Monetary Fund.

“We’re in a much more shock-prone world,” said Catherine Pattillo, deputy director of the lender’s Africa department, in an interview in Washington.

To better prepare for sharp price swings – the cost of crude has fluctuated between a low of $23 a barrel and a high of $115 a barrel in the past two years alone – countries should “during good times consider saving and aiming for manageable budget surpluses”. says Patillo.

Morocco Set to Ditch Bond Market Yield, Could Use IMF Credit Line (5:48 a.m.)

Morocco is set to suspend a planned issuance of a sovereign bond this year and may instead use its line of credit with the International Monetary Fund, according to a person familiar with the matter, as the government seeks a cheaper way to repay maturing debt. in December.

The kingdom plans to draw about $1 billion from the IMF as the soaring cost of dollar debt makes borrowing unattractive this year, according to the person directly involved in the talks but not authorized to speak publicly.

Morocco previously planned its first issuance abroad since 2020 around the time its $1.5 billion bond matures in December. The central bank and finance ministry did not respond to emailed requests for comment.

IMF Sees China Covid Zero Exit in 2023, Calls for More Stimulus Measures (11:01 p.m., Oct. 13)

China may not move away from its strict Covid Zero policy until the second half of next year, according to the top International Monetary Fund official in the country, who also called for more monetary and fiscal stimulus to support the economy.

The IMF assumes the conditions for lifting the zero-tolerance approach to tackling Covid infections will be in place by the second half of next year, Steven Barnett, the senior resident representative in China, said in a Friday interview with Bloomberg TV’s Shery Ahn and Haidi. Mon.

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