Central banks meeting in the United States, Japan and Britain must tread a fine line between rising inflation and heightened risks to the economic outlook from Russia’s invasion of Ukraine.
So far, market volatility has done little to shift the view that the Fed will grit its teeth and hike rates at a steady pace to tame inflation, even as it risks hurting economic growth. But while inflation is running at more than double the target, investors no longer expect a 0.5% rate rise, though they will watch the bank’s assessment of how the war in Ukraine is affecting the policy outlook.
Note the similarities: a geopolitical event that triggered an oil price shock, soaring inflation that central banks were slow to respond to and risks of an economic slowdown. Banks are ramping up inflation forecasts and slashing GDP estimates; ABN AMRO reckons the energy and commodity shock could last a year.
Sino-Russian trade has grown sharply this year, but gains would be wiped out if economic links with the West turn sour -- the United States has warned it could penalise Chinese companies boosting trade with Russia. China is already turning on the monetary taps as top leaders emphasise the need for stability. That should continue.A money changer holds Turkish lira and U.S. dollar banknotes at a currency exchange office in Ankara, Turkey Dec. 16, 2021.For some developing economies, soaring commodity and energy prices are a boon. But for others, they are a new headwind.
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