U.S. central banks prepare for withdrawal of economic stimulus

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U.S. central banks prepare for withdrawal of economic stimulus

TOKYO - While the U.S. Federal Reserve is publicly committed to keep interest rates above zero for some time, there are growing expectations that accelerating inflation could pressure the central bank to start seriously debating the withdrawal of economic stimulus.

At the same time, central banks in other parts of the world are already preparing or adjusting pandemic policy settings or adjusting disaster-mode stimulus measures.

The bank of Japan has maintained an ultra-slow monetary policy for years in a long battle to revive stagnant consumer prices.

A Fed tapering is unlikely to change this outlook. The main concern among Indonesia policymakers is the risk of market turbulence that could increase investors' demand for safe-haven yen.

The Bank of Canada became the first among Group Seven nations to withdraw from its pandemic stimulus and signalled rates could begin in 2022 to rise.

China's central bank is trying to limit the credit growth to help contain debt risks, but is treading cautiously to avoid hurting the economic recovery that remains uneven as consumption lags.

A Chinese Central Bank official said signals from Fed on future policy moves will have limited impact on China's financial markets.

The Norwegian central bank plans to increase the rates in the third or fourth quarter of 2021, likely making it the first among its G 10 peers to raise the cost of borrowing since the pandemic began.

As planned, the Swedish central bank said it would complete its 700 billion government bought asset buy program by the end of 2021.

The pace of asset purchases will increase throughout the year, but the pace of buying is not guaranteed to decrease. After that, Riksbank has said it would keep its balance sheet roughly unchanged at least during 2021, replacing maturing bonds.

The Reserve Bank of New Zealand has held rates at record lows, but hinted at a hike as early as September next year as the country emerges from its Pandemic slump quickly.

The Bank of Korea signaled an eventual tilt towards tightening to end its run of record-low rates and enhanced its growth and inflation projections.

Double-digit inflation, persistent currency weakness and badly depleted reserves prompted Turkey's central bank to begin tightening policy in September last year, well before emerging market peers. Its key rate is now one of the highest globally 19% at 20 %.

The World Bank and others say that President - Fed tightening is the biggest risk to Turkey. The central bank is not expected to tighten, in part due to public pressure from President Tayyip Erdogan to maintain the economic stimulus.

Brazilian central bank raised its benchmark rate at its past two policy meetings and has indicated it could do so again, with inflation expected to rise.

South Africa's central bank has kept rates low to support its economic recovery, but said that upside inflation risks began to emerge in 2018.

The governor said the recent spike in consumer prices was permanent, but that the bank would not hesitate to tighten the policy if it became temporary.

In May Indonesia's central bank governor said that it would be prepared for a potential Fed tightening next year, warning that such a move could have an effect on local financial markets.

The Bank Indonesia has introduced rates by a total of 150 basis points and cut up liquidity for more than $50 billion since the pandemic began.

Benjamin Diokno said the federal bank is prepared for any change in U.S. Federal Government policy, but does not think that the Western Bank will rock the boat ahead of American mid-term elections next year.

The BSP kept rates at record lows and pledged to maintain loose policy until it was sure the economy was on a path to recovery.

The Reserve Bank of India has kept the rates at historic lows as its economy grapples with a devastating new wave of COVID- 19 infections.

RBI Governor Shaktikanta Das said that the growing foreign funds reserves, which now exceed $600 billion, will help deal with world challenges arising out of global spillovers.

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