IMF Latest: Villeroy Says UK Missteps Offer Lessons for Others

(Bloomberg) — The market turmoil sparked by the UK’s fiscal and monetary missteps is not over yet and offers lessons to other countries trying to navigate surging inflation, Bank of France Governor Francois Villeroy de Galhau said.

“Avoiding any specific comments on fiscal policy or monetary action there are probably some useful landmarks to be taken from what happened and it is not yet over,” the French central banker said at Columbia University before heading to Washington for the IMF and World Bank meetings.

Villeroy said it is important to be as predictable as possible in uncertain times and monetary and fiscal policy should be ‘’consistent.”

“You should be cautious about the content of your fiscal expenditures: are they growth efficient, are they warranted by the present energy crisis we have or not?” Villeroy said. “ These are questions for everybody, not only for European countries.”

The IMF’s annual meetings bring global finance and central bank chiefs — along with their development and banking counterparts — to the US capital to chart a path forward for the global economy. 

Even after the misery of this year — surging inflation, war in Ukraine, China’s slowdown — Bloomberg Economics is asking whether next year could be worse. The unfortunate answer is yes, particularly as the Federal Reserve’s rate hikes drive the dollar higher, stressing economies around the world.

The IMF also warned of a deteriorating outlook, cutting its forecast for worldwide growth next year and saying that policies to tame high inflation may add risks to the global economy.

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Villeroy Says Coordinated G-7 FX Interventions Work (6:07 p.m.)

Earlier at the same event, Villeroy said Group of Seven foreign-exchange interventions can be effective if there’s a coordinated approach.

The French central banker reiterated the G-7 doctrine that central banks do not target exchange rates, but said this implies dialogue on their intentions to maintain predictability and avoid surprises. If there are market misperceptions, exchange rates can become “fundamentally misaligned.” 

“Under such circumstances, there were G-7 interventions in the past,” Villeroy said. “Several of them were effective, which we shouldn’t forget.”

He added that to be successful, such interventions had to result from a “shared diagnosis” about fair levels for currencies and misalignments, which could be provided by the IMF. Interventions also had to be coordinated in implementation, or “at least in their communication,” he said.

Bailey’s Warning on BOE Support End Rattles Markets (5:24 p.m.)

Bank of England Governor Andrew Bailey warned fund managers they have until the end of this week to wind up positions that they can’t maintain before the central bank halts its market support, triggering a selloff in the pound and US stocks.

“My message to the funds involved and all the firms is you’ve got three days left now,” Bailey said at the Institute of International Finance’s annual meeting in Washington. “You’ve got to get this done.”   

Yellen Urges Allies to be ‘Doing More’ for Ukraine (3:59 p.m.)

US Treasury Secretary Janet Yellen pledged the Biden administration’s continued support for Ukraine on Tuesday and called on allied countries to increase their backing for Kyiv by “by stepping up in doing more.”

“We are calling on our partners and allies to join us by swiftly disbursing their existing commitments to Ukraine and by stepping up in doing more — both to help Ukraine continue its essential government services and to help Ukraine begin to build and recover,” Yellen told her Ukrainian counterpart, Finance Minister Serhiy Marchenko in a meeting at the Treasury headquarters in Washington.

Marchenko responded by thanking Yellen and the US government for its “unbelievable” support for Ukraine during its war with neighboring Russia.

Protesters Crash Panel; Gopinath Urges Debt Rework (3:42 p.m.)

A group of protesters interrupted a panel discussion on debt restructuring at the International Monetary Fund, calling for the debt of fragile nations to be canceled. 

“Cancel all debt, reparations now,” the protesters shouted at the start of the talk at the IMF’s Washington headquarters on Tuesday, before they were escorted from the hall. 

At the discussion, IMF First Deputy Managing Director Gita Gopinath said many countries needed immediate relief from their debt burdens and “don’t have the luxury.” 

“We need to move much faster” as debtors have a tendency to gamble for redemption, she added. 

Emerging and developing nations are struggling to service record debt levels. IMF calculations show 60% of low-income countries and a quarter of emerging markets are at or near debt distress.

SNB Chief Says Delivering Price Stability Is Crucial (2:19 p.m.)

Inflation that’s too strong can threaten central banks’ independence, Swiss National Bank President Thomas Jordan warned.

“Delivering on price stability is absolutely key for central banks — independence will only survive if there is a positive result for the public at large,” Jordan said after a lecture at the Peterson Institute. “So having high inflation for a long time, that would be a disaster.” 

G-20 to Use All Its Tools to Tackle Food Insecurity (1:14 p.m.)

Indonesian Finance Minister Sri Mulyani Indrawati acknowledged that tensions around Russia surfaced during a Group of 20 meeting addressing food security, though she said officials ultimately focused on what actions could be taken to help alleviate the crisis.

US Secretary Janet Yellen led critics of Moscow at the meeting, blaming Russia’s invasion of Ukraine for disrupting food production and transport. In a press conference following the session, Indrawati said Russian officials responded by saying the food crisis began before the war. Indonesia currently holds the rotating presidency of the G-20.

Supply-chain issues associated with the Covid-19 pandemic first began disrupting food shipments in 2020. Russia’s invasion, however, exacerbated the issue by reducing grain output from Ukraine, hurting distribution through the Black Sea and causing energy prices to spike, further straining the resources of low-income countries.

Indrawati said the G-20 ministers remained committed to using “every policy tool available” to deal with food insecurity, and had agreed to initiate a “mapping” exercise, to be conducted by the World Bank and the Food and Agriculture Organization, that would identify countries and regions that required the most focus.

She said the mapping would be completed by spring 2023 when India takes over G-20 leadership.

Italy Recession Looms on Energy Crisis, Brooks Says (10:47 a.m.)

Italy faces a looming economic contraction as the gas-dependent country struggles with the energy crisis, said Petya Koeva Brooks, deputy director of the International Monetary Fund’s research department. 

“We are expecting Italy to enter a technical recession in the coming quarters and a big impact has come from the energy crisis and the elevated inflation and the adverse impact on real incomes,” Koeva Brooks told a news conference Tuesday, adding that risks to the outlook are “very much on the downside.” 

ECB’s Enria Expects European Bank Mergers Eventually (10:11 a.m.)

European Central Bank supervisory board chief Andrea Enria said he expects some cross-border consolidation among the region’s banks to eventually happen, although he doesn’t sense much “appetite” among lenders for now. 

The ECB has made clear to lenders that it isn’t hostile to the idea of consolidation, he said, speaking at the Institute of International Finance’s 2022 annual membership meeting in Washington.

“Some banks” now face higher capital requirements after they didn’t show sufficient “responsiveness” to the ECB’s guidance on leveraged finance, Enria also said. He said the banking sector remained resilient, but he was concerned about the worsening macroeconomic outlook.

Yellen Calls for Help on Food Crisis (9:26 a.m.)

US Treasury Secretary Janet Yellen urged the world’s largest economies to offer more help to low-income countries hit hardest by the disruption of global food supplies.

“We must step up financial assistance to address the impact on the most vulnerable, including through multilateral mechanisms like the Global Agriculture and Food Security Program,” she said at a gathering of finance and agriculture ministers from Group of 20 countries. 

IMF Cuts Global Economy Growth Forecast (9 a.m.)

The IMF reduced its prediction for global growth next year to 2.7%, from 2.9% seen in July and 3.8% in January, adding that it sees a 25% probability that growth will slow to less than 2%. The impact of the Fed’s monetary policy tightening will be felt globally, with the dollar’s strength versus currencies in emerging and developing markets adding to inflation and debt pressures. 

EU Energy Crisis Action Needed, Calvino Says (8:50 a.m.)

Germany is aware steps are needed to make Europe stronger in the face of the energy crisis, and the question of joint debt issuance remains open, Spanish Economy Minister Nadia Calvino said. The European Union must again apply the “unity and solidarity” it adopted to tackle the Covid crisis, she said in an interview with Bloomberg Television in New York.

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