Inflation a global concern | Borneo Online Newsletter
Inflation is a global concern, with central banks around the world tightening monetary policies while mindful of the possibility and potential consequences of a recession, which could derail the post-pandemic recovery and introduce additional risk to economies. highly indebted businesses and households.
This was stated by the Managing Director of the Central Bank of Brunei Darussalam (BDCB), Hajah Rokiah binti Haji Badar, in his keynote address during a Standard Chartered Global Research briefing at the Indiara Samudra Grand Hall of the Brunei Darussalam. ‘Empire Brunei yesterday.
Geopolitical risks continue to undermine global economic growth and distort financial market predictability in the fourth quarter of this year.
The fallout from the conflict between Russia and Ukraine is pushing energy prices higher and has now accelerated inflation beyond forecasts.
The managing director cited a recent statement from the International Monetary Fund (IMF) that said trading conditions over the past three months have worsened significantly and the risk of a global economic recession is increasing.
“The social impact of inflation is also being closely watched, as the income inequality gap that has widened as a result of the pandemic could be further exacerbated by rapidly rising prices,” Hajah said. Rokiah.
Regarding conditions in the Sultanate, she said rising prices are often presented as a concern in everyday conversations.
Although inflation is rising at a more manageable rate in the Sultanate than in many economies around the world, businesses and households have had to adjust their spending significantly, she said.
“Many companies surveyed in the BDCB’s monthly Business Confidence Index survey expressed concerns about rising operating costs resulting from more expensive raw materials, as well as transportation costs. and logistics that erode their profit margins,” she added.
The Managing Director added that despite relatively higher inflation averaging 3.3% in the first quarter of 2022, the national economy is expected to hold up well this year with higher government revenues due to high oil prices, a new easing of COVID-19 related restrictions, and several ongoing foreign direct investment (FDI) projects.
She went on to share that after a contraction of 1.6% in 2021, the Department of Economic Planning and Statistics (DEPS), Ministry of Finance and Economy, forecast that the growth rate of gross domestic product (GDP) would be in the range of 0.4 to 0.8% in 2022.
“The non-oil and gas sector is expected to be the main driver of growth, contributing between 6.3 and 7.0%, while the contribution is expected to decline by around 5.2%.
She further shared that there are heightened concerns that the confluence of numerous downside risks could tip some countries into recession in the short to medium term, and that the IMF has revised down its forecasts. of global growth for the third time this year, rising from 3.6% to 3.2% for 2022, and from 3.6% to 2.9% for 2023 to reflect the impact, among other factors, of the rise inflation, aggressive interest rate hikes by central banks, slowing global economic growth and sanctions against Russia.
“Financial markets are not spared from these impacts. We also face a unique situation as we have observed that the typical negative correlation between equity and bond markets no longer holds,” said the Managing Director of CBDB.
Bond and equity markets are indeed heavily impacted by rising global inflation, soaring inflation and rapid interest rate hikes by the Federal Reserve have driven bond yields up and prices down sharply, which had a negative impact on fixed income investments on the one hand, and MSCI World index down 15% since the start of the year, as companies continue to be affected by rising costs production and investors must, on the other hand, look more carefully to seek returns.
Hajah Rokiah also noted the collapse of the cryptocurrency and stablecoin market in recent months, which has prompted global financial regulators to call for stricter oversight of these virtual assets, with concerns over the extreme. volatility and vulnerabilities that could impact other assets. International standard setting bodies such as the International Organization of Securities Commissions (IOSCO) released a roadmap for crypto-asset regulation earlier this month, outlining its ambition to establish a basic framework of principles and recommendations for addressing risks in the crypto-asset ecosystem. and to apply them globally, in the next 12 to 24 months.
“While the use of cryptocurrencies and stablecoins is not yet widespread domestically, BDCB anticipates this to be a potential risk area and is also working to put in place the necessary frameworks to bring these crypto-assets into its regulatory fold and to remedy these damages,” she added.
While all of these issues may seem overwhelming to entities around the world, the CEO said they provide the very important lesson in resilience which is the ability to withstand unpredictable threats or changes and to emerge from them. stronger.
“Few could have predicted the perils we face today, and things may continue to be unpredictable in the future. All one can and should do is be prepared,” said Hajah Rokiah.
She highlighted the diversification and digitalization initiatives of the Government of Brunei Darussalam as outlined in the Economic Plan The Digital Economy Master Plan is on track to support future economic developments that will drive sustainable growth in the country. In addition, the corresponding frameworks and infrastructures are designed to be able to withstand proven and unexpected shocks.
Complementing the initiatives, Hajah Rokiah said that the BDCB continues its efforts to further develop and diversify the financial services sector which will act as a catalyst for economic growth. Through the strategies set out in the Financial Sector Blueprint and the Digital Payment Roadmap, BDCB aspires to create an environment conducive to the growth of a vibrant and diverse financial services sector with the ability to withstand shocks and vulnerabilities.
“Like many central banks or regulators, the CBDB has also strengthened its regulatory frameworks and put in place important prudential safeguards. Financial institutions are more robust and continue to be sound and sound, as we have seen over the past two years. But we will not be complacent as the current chain of events is unprecedented,” Hajah Rokiah said.
Through active collaboration between policy makers and industry players, the Managing Director of BDCB believes that the Sultanate will emerge from this difficult period on its feet, as the headwinds facing the global economy and financial markets should persist for some time.
“However, what defines us are our responses and our strategies for navigating through this turbulent time,” Hajah Rokiah said before concluding his keynote address.