China needs to support "monetary stability" with "economic strength", while the US monetary policy is undergoing a sharp turn in monetary policy | impact | economy
With the Federal Reserve raising interest rates for the tenth time early last month, the federal funds rate in the United States has reached its highest level since 2007. At the 14th Lujiazui Forum held on the 9th, attending experts called for attention to the impact of global monetary policy adjustments on China, and actively responded to it, supporting monetary and financial stability with strong economic support.
The Federal Reserve announced on May 3rd that it will raise the federal funds rate target range by 25 basis points to the level of 5% to 5.25%. The current round of interest rate hikes by the Federal Reserve is a major reversal of previous loose monetary policy.
After the COVID-19, the Federal Reserve first implemented the unlimited quantitative easing policy, which opened the most radical "big release" in history, and pushed up the inflation pressure of the United States itself and the world. Wang Jiang, Chairman of the Academic Committee of the Shanghai Advanced School of Finance at Shanghai Jiao Tong University, said that in the more than 30 years since the 1990s, the United States has adopted a very loose monetary policy with the goal of promoting employment. Inflation has been well controlled for a long time, making the Federal Reserve feel free to use monetary policy tools. Recently, inflation has finally arrived, indicating that the economic laws have not changed.
In response to high inflation and a sudden shift in monetary policy, the United States has initiated the most aggressive interest rate hike in decades in 2022.
Wang Tingke, Chairman of the People's Insurance Group of China Limited, said that the US monetary policy has significantly increased its gains, exceeding market expectations. Sorting out the history of monetary policy in the United States, interest rate hikes are mainly aimed at addressing inflation and economic overheating. In fact, inflation is not a purely monetary problem, but also a supply problem caused by the COVID-19 epidemic and the Russia-Ukraine conflict. Now we are dealing with it in a monetary way, which will inevitably lead to multiple contradictions.
The rapid shift and strength of the Federal Reserve's monetary policy are rare in history, resulting in a series of economic shocks. From the perspective of the United States itself, almost every round of interest rate hikes will result in an economic recession. Recently, multiple institutions have analyzed that an economic recession in the United States at the end of this year or early next year is a high probability event.
From a global perspective, a recent economic report by the World Bank mentioned that the global economy is in a dangerous state. With rising interest rates, economic activities are severely impacted, especially the vulnerability of low-income and developing countries is beginning to be exposed, and global economic growth will significantly slow down. The stability of the global financial system is seriously threatened, and the drag effect of rising interest rates is becoming increasingly evident.
Wang Tingke believes that for China, the spillover effects of the sharp adjustment of US monetary policy are limited. Because the entire economy of our country has maintained a stable and upward development trend, and has long adhered to a prudent monetary policy.
However, he also pointed out that in the short term, the impact of the US monetary policy adjustment on the financial market can not be ignored, which is mainly manifested in several aspects: first, the RMB exchange rate is under pressure to depreciate in the short term; second, foreign exchange reserves are under pressure to shrink; third, the stock market has fluctuated recently.
Experts attending the Lujiazui Forum pointed out that we should attach great importance to the impact of global monetary policy on China and actively respond. Wang Tingke believes that the most fundamental thing is to consolidate the positive trend of economic recovery. Take more effective policy measures to further form positive income and consumption expectations, market investment expectations, accelerate the process of economic recovery, maintain China's leading position in the world economy, and support monetary and financial stability with strong economic support.
The Secretary for Financial Affairs and Treasury of the Hong Kong Special Administrative Region Government, Xu Zhengyu, pointed out that another response measure is asset diversification. The fluctuation of US dollar interest rates leads to exchange rate fluctuations. Regions around the world are actively considering diversifying their asset classes and allocations. Xu Zhengyu believes that the Chinese yuan is a natural choice. On June 19th this year, the Hong Kong stock market will launch a RMB counter, with approximately 20 stocks, accounting for 40% of daily trading volume, that can be traded in RMB in addition to Hong Kong dollars. Next, Hong Kong will connect the RMB counter to the Hong Kong Stock Connect, allowing mainland investors to directly purchase Hong Kong stocks in RMB.
From the perspective of the financial industry, the current instability of the financial system and a series of bank turbulence and risk events remind us that financial institutions must take these events as a reference, strengthen forward-looking and comprehensive risk management, pay more attention to risk management issues under severe external environmental fluctuations, increase investment in risk management technology, enhance forward-looking risk management, and place greater emphasis on stress testing under multi scenario analysis.
"We need to make up for the 'leaking house' on a sunny day," said Wang Tingke.
