Fetco chief condemns Fed’s ‘misguided’ policy hikes

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He warns of a coming global recession

Foreign currency exchange rates are displayed at an exchange office on September 30. The baht depreciated from 32 to the dollar at the beginning of this year to 38 baht currently. Pornprom Satrabhaya

The global economy is on the verge of falling into recession next year as countries have taken the wrong course of currency management in response to aggressive rate hikes by the US Federal Reserve, a Thai economist warns.

Kobsak Pootrakool, chairman of the Federation of Thai Capital Market Organizations (Fetco), said the Fed’s rate hike policy had negative effects on stocks, bonds, gold, cryptocurrency , commodities and currencies around the world, with the US dollar being the only exception.

The real economy is facing high inflation and its impact is spreading from a small circle of investors to consumption, manufacturing and exports, as well as corporate profits, he said.

“The problem has spread from Wall Street to Main Street, affecting everyone from investors to everyday citizens. The latest Purchasing Managers Index figures from many countries including the US, UK United, Japan and China, were down from a year ago,” Kobsak said. , who is also Senior Executive Vice President of Bangkok Bank.

The US economy is expected to grow just 0.2% this year, down sharply from a previous forecast of 4%, while the unemployment rate is expected to hit 4.4% in 2023 from 3.5% currently. .

There are also sharp declines in asset prices, he said. The Fed, however, insisted it “cannot quit until the job is done.”

As the damage from this hawkish Fed policy has begun to spread, Kobsak said ordinary people will be hurt by the global recession and its aftermath.

In Thailand, the baht has depreciated from 32 to the dollar at the start of this year to 37-38 baht currently, while the value of the country’s exports has fallen for three months in a row even as the baht weakens.

Politicians in some countries have taken the wrong path, compounding the problem and destroying trust, he said. In the UK, the new government announced tax cuts to stimulate the economy while the Bank of England moved to curb inflation with misguided policy, he said. These moves severely damaged the UK bond market and the pound.

Japan spent around 700-800 billion baht to intervene in its exchange rate, but the yen continued to depreciate and is now trading at 146 to the dollar.

Turkey and Colombia are other examples of “political mistakes”, Kobsak said. The Turkish currency has weakened from 8-9 lira against the greenback last year to 18.5 lira per dollar now, while inflation in the country has fallen from around 17-18% to 83, 5% currently.

Colombian President Gustavo Petro has said his government is considering imposing a tax on capital outflows to try to curb such movements. This statement weakened the peso, causing it to fall to 4,500 pesos to the dollar from 3,800.

“These four countries are just a glimpse of policy mistakes,” Kobsak said. “It’s a critical situation and there will be more mistakes, which will aggravate the crisis, taking it to the next level.”

As many developing countries were unable to manage the crisis on their own due to a lack of liquidity, they increasingly turned to the International Monetary Fund (IMF) for help. These countries include Sri Lanka, Bangladesh, Pakistan, Laos, Myanmar, Ghana, Zambia, Argentina, Egypt and Chile.

Recent data has shown that IMF financing to its members has reached an all-time high.

“It’s no surprise given the strong dollar, rising interest rates and capital outflows,” he said.

In many countries, exports have fallen, while energy and food prices are high, leading to larger trade deficits and lower foreign exchange reserves.

The latest data shows global central bank reserves fell to $12 trillion from $13 trillion in the first half of 2022. Foreign exchange reserves are expected to continue to decline in the last three months of this year, a said Mr. Kobsak.

“It’s a crisis tipping point, moving from the Fed and central banks to the real economy, to governments and to the IMF. We’re entering a perfect storm,” he said.

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