The monetary policy 2020-2021

EDITOR 8/8/20: The Monetary Policy Committee has warned that food prices could rise in the near term, because of problems in the supply chain as a fall out of the COVID pandemic. It also expects overall inflation to stay high near term because of costly petrol and diesel prices. "A more favourable food inflation outlook may emerge as the bumper rabi harvest eases prices of cereals, especially if open market sales and public distribution offtake are expanded on the back of significantly higher procurement. Nonetheless, upside risks to food prices remain,"

Since the beginning of the year, and especially over the past 5 months, the COVID-19 pandemic coupled with governments’ necessary responses to save lives, including isolation, social distancing and home quarantine, have triggered the worst downturn since the Great Depression in the 1930s. 

the global and Asian economic outlook and financial developments.

Though still affected by the pandemic, several countries have started to reopen their economies and are making efforts to resume work and production. However, in the absence of a medical solution (for example, the development, production, and use of effective medicines and vaccines), the strength of the recovery remains highly uncertain.

Since the outbreak of the COVID-19 pandemic, the IMF has issued itsWorld Economic Outlook (WEO) and its Global Financial Stability Report (GFSR) twice, in April and again in June. In the April WEO report, our projection of global output in 2020 was brought down substantially to -3.0 percent from 3.3 percent. In our June report, the projection was further revised downward by 1.9 percent to -4.9 percent. In other words, we believe the impact of the pandemic on world output is much bigger than we thought two or three months ago.

Almost all our member countries are seeing their growth forecasts this year revised downward, and most into negative territory. A synchronized deep downturn in 2020 is taking place, in both advanced economies (-8 percent) and emerging market and developing economies (-3 percent; -5 percent if we exclude China). Over 95 percent of countries are projected to have negative per capita income growth in 2020, with export-dependent economies particularly affected.

what can we say about the economic and financial outlook in Asia?

With the exception of China, most Asian economies have had to ramp up their containment measures since the release of our April WEO report. The current picture of virus cases differs across the region. Some countries are experiencing rapidly rising cases each week. Others are trying to flatten their curves. And yet others have been relatively successful in getting the virus under control. The main impact of lockdowns on the real economy is in the second quarter of 2020 for most Asian economies excluding China.

About our GDP forecast, for the first time in recent memory, Asia’s output is expected to contract by 1.6 percent—a further downgrade from our April projection of zero growth. Asia’s economic growth in the first quarter of 2020 was, in fact, better than projected in April—partly owing to early stabilization of the virus in some countries. But, according to our June report, projections for 2020 have been revised downward for most of the countries in the region on account of weaker global conditions and more protracted containment measures in several emerging economies.

We are projecting that only a very small number of economies in Asia and the Pacific will actually grow this year, including China by 1.0 percent. Most economies in the region are expected to contract in 2020, and some quite sharply—Korea by around 2 percent, India by 4.5 percent, Japan by 5.8 percent, and some other economies by even more, given their dependence on remittances, tourism, and/or commodities.

It is also important to note that across Asia, on the demand side the only spending that is growing in 2020 is government consumption and investment, in emerging as well as advanced economies. In other words, economies are relying heavily on government stimulus.

(Bloomberg) -- The European Central Bank isn’t done expanding its bond-buying program yet, according to economists, despite recent remarks by policy makers that the outlook has brightened slightly.

More than half of respondents in a Bloomberg survey predict an increase in the ECB’s 1.35 trillion-euro pandemic purchase program ($1.5 trillion) by December, with most expecting an extension and a top-up of 500 billion euros. The Governing Council is seen keeping its policy unchanged when it meets next week.

Expectations that the ECB will need to do more highlight the extraordinary uncertainty surrounding the recovery from the crisis. While officials have said the latest data point to a relatively sharp bounceback, they also stressed the euro-zone economy is still on course for its biggest contraction ever -- almost 9% this year -- and the extent of damage to companies and labor markets is still hard to judge.