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Impact of Interest Rate Hikes on Global Financial Stability and Coping Strategies

On November 11, 2022, CF40 held a Youth Forum on "Global Financial Risks and Coping Strategies Following Interest Rate Hikes". Experts from financial institutions, regulatory agencies and academia gathered online to assess the spillover of monetary tightening by major central banks, and suggested solutions for the global financial market.

Dr. Joy Yang, Member of the CF40 Council and Chief Asia Economist at Point72 Asset Management, delivered a keynote speech from a buyer's perspective. She analyzed the uncertainties with the financial markets in the mid-to-long term and provided her explanations for the market vitalities since 2022.

Geoffrey Yu, Senior EMEA Market Strategist of BNY Mellon shared his observations on asset allocation in the context of rising interest rates. He noted an accelerated allocation among investors to US dollar assets, and a prevalent risk aversion stance across the global market. Yu warned that the biggest risk at present is corporate insolvency.

The two speakers were echoed by Dr. Gao Shanwen, Member of the CF40 Academic Committee and Chief Economist of Essence Securities, who gave his medium to long-term judgment on the global financial markets, suggesting that "the peak of U.S. inflation and dollar index might have passed" and the world should guard against economic recessions.

IMF Senior Economist Zhou Jianping added a macro perspective. By examining the Fed's monetary policy framework, Zhou concluded that "the Fed will not end rate hikes simply because short-term data exceeded expectations. The banking system remains profitable and seems not hit hard by rate hikes, but risks of the non-banking system may increase".

In the roundtable discussion, Zhong Zhengsheng (CF40 Guest Researcher and Chief Economist of Ping An Securities Co., Ltd.) presented his scenario simulation and forecast of the US dollar index and RMB exchange rate; Sun Mingchun (CF40 Member; Chief Economist of Haitong International Securities) identified three risks of high-interest rates that threaten financial stability: rising mortgage rates, corporate default, and non-banking system risks; Robin Xing (CF40 Guest Member; Chief China Economist of Morgan Stanley) made scenario assumptions and forecasts for economic growth next year and offered a few policy recommendations.

The seminar was moderated by Xu Qiyuan, CF40 Guest Researcher and Deputy Director of Institute of World Economics and Politics at the Chinese Academy of Social Sciences.