{"id":116203,"date":"2021-06-10T10:14:42","date_gmt":"2021-06-10T10:14:42","guid":{"rendered":"https:\/\/fin2me.com\/?p=116203"},"modified":"2021-06-10T10:14:42","modified_gmt":"2021-06-10T10:14:42","slug":"as-fed-taper-looms-global-central-banks-eye-their-own-exits-from-stimulus","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/as-fed-taper-looms-global-central-banks-eye-their-own-exits-from-stimulus\/","title":{"rendered":"As Fed taper looms, global central banks eye their own exits from stimulus"},"content":{"rendered":"

TOKYO\/JOHANNESBURG\/LONDON (Reuters) -Haunted by memories of past U.S. interest rate hikes, the world\u2019s central banks are laying the groundwork for a transition to life with less global stimulus, with many countries already signalling moves to the exit.<\/p>

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS\/Chris Wattie<\/figcaption>

While the Federal Reserve is publicly committed to keeping interest rates near zero — and no hikes are priced in until late next year at the earliest — official comments about inflationary pressures could become a chorus in months ahead, making tapering a more concrete prospect and likely heightening volatility in global financial markets.<\/p>\n

For some developed economies, a return to pre-pandemic conditions means central bank stimulus withdrawal is already in the works.<\/p>\n

Meanwhile, more vulnerable central banks are fortifying their financial systems to ward off the type of capital flight that hit emerging markets during the 2013 \u201ctaper tantrum,\u201d which was triggered by mere hints of Fed tightening after years of super-easy policy deployed during the Global Financial Crisis.<\/p>\n

\u201cThere\u2019s a huge divergence among economies emerging from the pandemic, and those lagging behind. Some emerging central banks may be forced to raise rates to defend their currencies, even at the cost of hurting their still-fragile economies,\u201d said Takahide Kiuchi, a former Bank of Japan (BOJ) board member.<\/p>\n

\u201cThis trend may broaden if the Fed communicates its taper strategy in coming months. This could be among risks for the global economy,\u201d said Kiuchi, currently an economist at Nomura Research Institute.<\/p>\n

The Fed has said it would not start scaling back its huge stimulus until there had been \u201csubstantial further progress\u201d in healing the U.S. job market.<\/p>\n

While job recovery remains patch, stronger-than-expected inflation raises the possibility that the Fed may have to tighten policy sooner than expected.<\/p>\n

For now, markets are bracing for the chance the Fed will start to communicate its taper strategy at its Jackson Hole symposium in August, with possible action later in the year.<\/p>\n

Some central banks are already responding.<\/p>\n

In April, Canada\u2019s central bank became the first among Group of Seven nations to withdraw its pandemic era stimulus and signalled rates could begin to rise in 2022.<\/p>\n

The Norwegian central bank has already announced plans to raise rates in the third or fourth quarter of 2021.<\/p>\n

New Zealand and South Korea have similarly dropped loud hints that policy tightening is on the agenda as conditions improve.<\/p>\n

While decisions in such countries would primarily be driven by domestic considerations, the Fed\u2019s eventual withdrawal of support looms large as a global risk for every central bank.<\/p>\n

Even Japan\u2019s central bank, which has hardly budged from its ultra-accommodative settings through decades of global cycles, may see an opportunity to dial back stimulus.<\/p>\n

\u201cA Fed rate hike may give the BOJ a perfect opportunity to normalise policy, without worrying too much about triggering a yen spike,\u201d Nomura\u2019s Kiuchi said.<\/p>\n

WOBBLE WATCH<\/h2>\n

Developing economies face the biggest risks from Fed tightening, which have in the past caused market gyrations as rising U.S. interest rates attracted funds into dollar assets and away from emerging markets, as happened in the 1998 and 2013.<\/p>\n

Asian markets, the epicentre of the 1998 Asian financial crisis, remain in significantly better shape with strong foreign reserves to support any currency rout.<\/p>\n

India\u2019s central bank governor last week said its reserves now exceed $600 billion, which it expects will help against challenges from \u201cglobal spillovers.\u201d<\/p>\n

But some analysts warn that lessons from Asia\u2019s financial crisis may not apply to the current pandemic-induced shock.<\/p>\n

\u201cThis crisis is like no other in that it\u2019s not a financial crisis or an economic crisis,\u201d said former BOJ official Nobuyasu Atago, who is now an economist at Japan\u2019s Ichiyoshi Securities.<\/p>\n

\u201cThe unevenness of the current global economy creates various risks for emerging economies.\u201d<\/p>\n

Among nations looking warily at the Fed is Indonesia, which relies on overseas inflows to fund its current account deficit.<\/p>\n

\u201cNext year we must prepare for possibilities of the U.S. central bank, the Fed, to shift its monetary policy, reducing its liquidity intervention,\u201d Bank Indonesia Governor Perry Warjiyo said last month, adding such U.S. policy shifts would likely impact local bond yields.<\/p>\n

The more vulnerable emerging market central banks, such as Brazil, Ghana and Armenia, have already started their tightening cycle on rising inflation pressures.<\/p>\n

Russia\u2019s central bank is expected to raise rates on Friday for the third time in a row with inflation well above its target, according to a Reuters poll.<\/p>\n

Turkey was ahead of the pack and aggressively tightened last year, a move its central bank governor hopes will serve as a \u201cshield\u201d against any Fed pivot.<\/p>\n

But heavy foreign debt keeps Turkey vulnerable to talk of Fed tapering. Rising U.S. yields recently helped push the lira to all-time lows, delaying planned rate cuts.<\/p>\n

For now, policymakers in places such as Thailand, the Philippines and South Africa buy the view the Fed won\u2019t hike prematurely and are confident that its communication to markets will be transparent.<\/p>\n

But they acknowledge risks.<\/p>\n

\u201cThe Fed has said it would like to see more inflation in the United States, they\u2019ve indicated they\u2019d have some tolerance for inflation,\u201d South African Reserve Bank Deputy Governor Fundi Tshazibana told Reuters.<\/p>\n

\u201cWhat all of us don\u2019t know is what that tolerance band is.\u201d<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

TOKYO\/JOHANNESBURG\/LONDON (Reuters) -Haunted by memories of past U.S. interest rate hikes, the world\u2019s central banks are laying the groundwork for a transition to life with […]<\/p>\n","protected":false},"author":3,"featured_media":116202,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"\nAs Fed taper looms, global central banks eye their own exits from stimulus - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/markets\/as-fed-taper-looms-global-central-banks-eye-their-own-exits-from-stimulus\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"As Fed taper looms, global central banks eye their own exits from stimulus - Fin2me\" \/>\n<meta property=\"og:description\" content=\"TOKYO\/JOHANNESBURG\/LONDON (Reuters) -Haunted by memories of past U.S. interest rate hikes, the world\u2019s central banks are laying the groundwork for a transition to life with [...]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fin2me.com\/markets\/as-fed-taper-looms-global-central-banks-eye-their-own-exits-from-stimulus\/\" \/>\n<meta property=\"og:site_name\" content=\"Fin2me\" \/>\n<meta property=\"article:published_time\" content=\"2021-06-10T10:14:42+00:00\" \/>\n<meta name=\"author\" content=\"Mark\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/fin2me.com\/wp-content\/uploads\/2021\/06\/As-Fed-taper-looms-global-central-banks-eye-their-own-exits-from-stimulus.jpg\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mark\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fin2me.com\/markets\/as-fed-taper-looms-global-central-banks-eye-their-own-exits-from-stimulus\/\",\"url\":\"https:\/\/fin2me.com\/markets\/as-fed-taper-looms-global-central-banks-eye-their-own-exits-from-stimulus\/\",\"name\":\"As Fed taper looms, global central banks eye their own exits from stimulus - 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