G20 finance chiefs agree to avoid monetary tightening “spillovers”
The Group of 20 major economies committed to avoiding economic “spillovers” from interest rate hikes as central banks tackle inflation, while sharing concern over increased volatility in currencies, Indonesian and Japanese officials said Thursday.
The announcements followed a two-day meeting of the finance chiefs of the G20, chaired by Indonesia. A continuing rift over the war in Ukraine among the G20 members, which include Japan, the United States and Russia, prevented the release of a joint statement.
Indonesia said in a press release after the meeting that the G20 finance ministers and central bank governors had reaffirmed their commitment to address “heightened global economic challenges,” citing rising food and energy prices, tightening financial conditions and the lingering COVID-19 pandemic.
To achieve price stability and avoid spillovers, the G20 members said they will “calibrate the pace of monetary policy tightening appropriately,” the press release added.
Indonesian Finance Minister Sri Mulyani Indrawati told a press conference that the shift toward increasing interest rates and tightening liquidity is creating “a huge risk” for countries with heavy debt burdens.
“We should not dismiss the possibility of an increased risk of recession,” she said.
At a time of complex global economic challenges, she also called for “strong leadership and collective action” from the G20 and underscored that the group should remain a “premier economic forum for cooperation” despite criticism over its dysfunction amid Russia’s invasion of Ukraine.
Japanese Finance Minister Shunichi Suzuki told a separate press conference that Russia’s war was making it difficult for the G20 to reach a “consensus,” which would serve as the basis for a joint statement.
The G20 finance chiefs failed to adopt joint statements at their April and July meetings. Instead, documents summarizing the talks were released by the chair.
The latest gathering in Washington, held on the sidelines of the fall meetings of the International Monetary Fund and the World Bank, took place as the U.S. Federal Reserve has been aggressively raising interest rates since earlier this year, pushing the value of the dollar sharply higher.
A strong dollar helps to hold down U.S. inflation as it lowers the cost of goods imported by the country, but it hits developing nations in particular by increasing their import costs and the burden of their dollar-denominated debts.
Resource-poor Japan has also been casting a wary eye over the rapid depreciation of its currency. The yen has come under selling pressure amid a widening divergence in monetary policy between the Fed and the dovish Bank of Japan, with inflation relatively low in Japan compared with other major economies.
Suzuki said the G20 members shared an awareness of the “increased volatility of many currencies.”
Apparently reflecting Japan’s concerns, the finance chiefs of the Group of Seven industrialized nations also acknowledged the “increased volatility” of currencies and the need to keep an eye on markets, during their meeting on Wednesday prior to the G20 gathering.
Japan, which will serve as next year’s rotating chair of the G7, announced Thursday that the G7 meeting of finance chiefs will be held from May 11 to 13 in Niigata Prefecture.