The Central Bank of Russia says inflation may trigger a new global financial crisis

Global Economic Update

The Central Bank of Russia stated that if global inflation is not controlled, a new financial crisis may occur in less than 18 months, which is comparable to the scale of the 2008 crash.

The Central Bank of Russia stated that if the Fed had to raise interest rates to quell inflation, soaring public and private debt levels during the recovery from the pandemic could lead to a “rapid and rapid deterioration” in the global economy. warn In its annual monetary policy forecast.

The report released on Thursday said that as interest rates rise prompt investors to sell risky assets, global GDP growth may slow to only 1.1%. Emerging market countries High levels of foreign debt will be particularly hurt.

“The risk premium will increase significantly, and the most indebted countries will find it difficult to repay their debts. The global economy will begin a major financial crisis in the first quarter of 2023—comparable to the crisis of 2008-2009, with a long duration. No. Certainty and long-term recovery,” the central bank said.

This forecast is not a central scenario for the central bank. On the contrary, this indicates that the economy will recover broadly, inflationary pressures will dissipate by the end of this year, and are “more likely” than alternative scenarios of financial crisis, worsening epidemics, or rising global inflation.

Even so, the warning still shows that Russia is increasingly worried about rising global inflation. Although U.S. and European Central Bank officials said they believed the price increase was temporary, the governor of the Russian Central Bank Elvira Nabiullina Tell the financial times In July, Russia’s growing inflationary pressure may be a long-term phenomenon.

Russia’s warning comes as inflationary pressures in emerging Europe are also increasing. The relaxation of restrictions on the coronavirus in the region restored economic output in the second quarter to pre-pandemic levels.

At the same time, however, this “recovery” was accompanied by a significant increase in price pressure. Consumer and producer price inflation reached multi-year highs in July, and there is no sign of slowing down,” the consulting firm Capital Investment Macro said in a report to clients.

This year, several large emerging markets have raised interest rates sharply in order to control the rise in inflation. Ukraine raised the policy interest rate by 2 percentage points, Russia by 2.25 percentage points, and Brazil by 3.25 percentage points. But the pressure is still great.

Brazil’s inflation rate is 9%, well above the central bank’s target of 3.75%. Economists expect the policy interest rate to rise from the current 5.25% to 7.5% by the end of this year.

“In response to this global environment, CBR [Russian central bank] Elina Ribakova, deputy chief economist of the Institute of International Finance, said that it is the right approach to stay ahead of inflation by raising interest rates.

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