The central bank of Russia hints on a possible global financial crisis, in less than eighteen (18) months, if global inflation is not kept under control.
The Bank disclosed that there is a possibility of the global financial crisis to follow in the footsteps of the 2008/2009 financial crisis.
More so, this global financial crisis prediction, the Bank’s report disclosed, is not the central bank’s general scenario. Rather, the Bank “foresees a broad economic recovery with inflationary pressures dissipating by the end of this year”.
Furthermore, the report disclosed that, the situation it foresees is salient and more probable than its alternative cases of global financial crisis, a worsening pandemic, or a possible surge in global inflation.
Inflationary rate in economies such as Brazil is running at 9 percent, well beyond its central banks target of 3.75 percent; Russia’s inflation is now around 6.5 percent; beyond its target of 4 percent, also Ukraine has its inflation moving around 10.2 percent, against its target of 5 percent.
Economies in an attempt to control the surge in inflation, have raised interest rate aggressively. Ukraine has raised its policy rate by 2 percentage points; Russia has also raised its policy rate by 2.25 percentage points and Brazil by 3.25 percentage points.
However, the report disclosed that the inflationary pressure remains resilient amidst these macroeconomic interventions.
Elvira Nabiullina, Russia central bank’s Governor, also disclosed that “inflationary pressures in Russia was likely to be a long-term phenomenon”.
This resounding warning of a possible financial crisis depicts Russia’s growing concern over rising global inflation, especially across emerging Europe.
Additionally, the report disclosed that, the “region’s easing of coronavirus restrictions has brought economic output in the second quarter back to pre-pandemic levels”.
However, an independent macro researcher, Capital Economics, in a note to its clients, disclosed that, the region’s recovery has been graced with abrupt surge in general prices.
“The recovery has been accompanied by a marked increase in price pressures. Consumer and producer price inflation reached multilayer highs in July and show no sign of letting up.”
Capital Economics
Contrary to the concerns raised by Russia, central banks’ officials of major economies like the United States (US) and the European Union (EU), have shown little concerns, as they indicate that these surge in general prices is only temporal.
Furthermore, in a report published by the central bank of Russia, it is predicted that “global gross domestic product (GDP) growth could slow to just 1.1 percent as higher interest rates prompt investors to jump risky assets”.
This, the central bank’s report disclosed, could be detrimental, particularly to emerging market economies “with high levels of foreign debts”.
Furthermore, Elvira Nabiullina, Russia central bank’s Governor, further disclosed that, indebted economies could find it difficult to service their debts, and hence, the first quarter of 2023 could welcome another significant global financial crisis.
“Risk premiums will increase significantly, the most indebted countries will struggle to serve their debts, and a significant financial crisis will begin in the global economy in the first quarter of 2023, one comparable to the 2008-2009 crisis, with a long period of uncertainty and a protracted recovery”.
Elvira Nabiullina
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