Bank of Russia: Out-of-Control Inflation Could Ignite New Global Financial Crisis

Russia’s central bank is warning that surging global inflation could spark a new financial collapse to the magnitude of the 2008 Financial Crisis if out-of-control prices are not quelled in the next 18 months.

According to the Bank of Russia’s annual monetary policy forecast seen by the Financial Times, a sharp increase in both public and private sector debt amidst the Covid-19 recovery could lead to a rapid and drastic deterioration in the global economy in the event that the US Federal Reserve is forced to hike interest rates. The report, which was published last week, warned that global output growth could decelerate to a mere 1.1%, as higher interest rates force investors to liquidate risky assets.

“Risk premiums will increase significantly, the most indebted countries will struggle to service their debt, 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,” read the central bank’s report.

The latest cautionary forecast coincides with Russia’s growing worry over rising inflation around the globe. Both the US and Europe have repeatedly insisted that any inflation that does arise during the economic recovery will only be temporary; Russia’s central bank, on the other hand, foresees inflationary pressure will persist into the long-run. As a result, the bank recently raised its policy rate by 2.25 percentage points in an effort to keep rising inflation under control.

Similarly, other major economies have also ramped interest rates, with Ukraine bumping up its policy rate by 2 percentage points, and Brazil by 3.25 percentage points. In the meantime, however, the US Federal Reserve has kept rates at near zero, and maintained its asset purchases at $120 billion per month, while inflation figures repeatedly exceed expectations as well as the central bank’s target rate.

Information for this briefing was found via the Financial Times. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.