INTRODUCTION The global economic outlook has darkened considerably, while inflation remains high. Since April 2022 World Economic Outlook, the war in Ukraine has continued and sanctions against Russia have been escalated. In addition to the humanitarian crisis, the economic impact has been felt worldwide, including through commodity prices, gas supply to Europe, supply chains, and financial markets. Inflation has surprised on the upside, has broadened beyond food and energy prices, and has remained above targets in many economies. In response, major central banks have announced further monetary policy tightening, which will weigh on the outlook, and global yields have risen. Some economies have employed fiscal measures to help alleviate the impact on households. Amid a financial market risk-off mode, the appreciation of the US dollar has coincided with capital outflows from emerging market economies, putting pressure on vulnerable economies. Associated inflationary risks could inflame social tensions, and tighter financial conditions would add to challenges from high debt levels. That said, it will be important that fiscal policy does not work against monetary policy efforts to bring down inflation. Joint multilateral efforts are key to overcoming the multiple challenges facing the world New shocks have , On top of a global pandemic, R‹issi’a’s invasion of Uki oi’ne in February 2022 along with associated sanctions, escalated economic costs—in particular in Ukraine and neighboring economies. About 5 million refugees from Uki ai’ne have been recorded across Europe and 7 million people have been displaced internally. The impact is being felt across the globe through a surge in commodity prices, disruptions to trade linkages, and financial market volatility. Positive inflation surprises have prompted many central banks to announce further frontloaded monetary policy tightening, which will weigh on the overall outlook. Inflation has continued to be on the upside, its key drivers remain the lingering supplychain disruptions, continued strong aggregate demand, and a sustained increase in energy and food prices. Core inflation as well as headline inflation is rising in several economies, including in the euro area where price inflation has reacged double digits. Implications For the Major economics In response to surging inflation, monetary policy has continued to tighten across most of the economies. As of mid -June, the U.S. Federal Reserve has hiked policy interest rates by 125 basis points since March, and has indicated that further tightening is expected this year. In Europe, the ECB(European Central Bank) ended its net asset purchases as of July 1st and has signaled a forthcoming rise in the policy interest rate. Moreover, monetary policy tightening has become increasingly synchronized across economies As of early July, all central banks have started tightening, Meanwhile, financial markets are tightening, and volatility has heightened. While financial market volatility has been elevated since February, uncertainty related to the war in Ukraine has contributed to equity price swings, and the risk-off sentiment has strengthened. By the end of June 2022, the S&P 500 index has declined by 21 percent since the beginning of the year and US 10- year bond yields have risen by 143 basis points. Alongside, the US dollar has strengthened against most currencies, and cumulative capital outflows from emerging market economies as of late June were on par with those seen following the onset of the pandemic. The Deutsche Bundesbank is the independent central bank of the Federal Republic of Germany. It has formed part of the Eurosystem since 1999, sharing responsibility with the other national central banks and the European Central Bank for the single currency, the euro. In order to check inflation, The President of the Bundesbank is involved in making strict monetary policy decisions as a member of the Governing council of the European Central Bank. The Bundesbank is charged with implementing those decisions in Germany. Implication in the German Economy Drop in industrial output High energy costs have weighed on the energy-intensive sectors. Construction output remained robust despite a sharp decline in demand and rose by 1½% on the month in July. Labour market still resilient The Bundesbank’s economists assess the labour market as still being resilient despite the deteriorating economic outlook. There was moderate employment growth in July, which was mainly due to the filling of jobs subject to social security contributions. At the same time, unemployment rose slightly by 0.1 percentage point to 5.5% in August due to the inclusion of Ukrainian refugees in the German social security system since June of this year. Inflation up again The annual inflation rate as measured by the Harmonised Index of Consumer Prices rose to 8.8% in August, 0.3 percentage point higher than in July. This development was mainly fuelled by price increases for unprocessed food but the strong price dynamics likewise continued for processed food and for industrial goods and services, according to the Bundesbank’s experts. Measures taken by European Central Bank to curb inflation In the euro area, the Eurosystem, i.e. the European Central Bank (ECB) and the national central banks of the Member States, are tasked with safeguarding price stability. As part of its monetary policy, the Eurosystem determines the cost at which commercial banks can borrow short-term money from central banks. In this way, it steers the short-term interest rates at which banks grant credit to other banks and indirectly influences the interest rates on bank loans to businesses and consumers. These interest rates decide whether a business deems an investment to be worthwhile. Adjustments to policy rates also influence economic agents’ expectations and the exchange rate of the currency. Via all these channels, monetary policy impacts on aggregate demand and, by extension, on consumer price inflation. To do something to counter the current high inflation, the ECB Governing Council raised the key interest rates in July for the first time since 2011. In addition, it addressed the prospect of further interest rate increases going forward. This is because higher interest rates have a dampening effect on demand and therefore on price developments, too. The Governing Council considers that price stability is best maintained by aiming for a 2% inflation rate over the medium term. Negative and positive deviations from the medium-term inflation outlook are considered to be equally undesirable. One reason why the word “medium-term” is so important is that temporary deviations from the target do not necessarily require a monetary policy response. It is far more crucial for monetary policy that medium and long-term inflation expectations are firmly anchored at the target level of 2% Disruptions in the financial system can prevent monetary policy from being properly implemented, thereby putting price stability at risk. Its day-to-day involvement in banking supervision gives it a deep insight into the business situation of Germany's credit institutions. In order to reduce inflation, readily availibility of cash to the german ppl is very important. In Germany, the exclusive right to issue banknotes lies with the Bundesbank. Through its branch network across Germany, the Bundesbank ensures that the commercial banks are supplied with a sufficient amount of high-quality banknotes and coins at all times. The banks issue this money to enterprises and households – this is how the cash enters the economic cycle. In turn, retailers and consumers pay in surplus cash at the commercial banks. These retain a small part for their own cash balances and to pay out to customers again. The remaining cash is returned to the Bundesbank. The transport of banknotes and coins is usually carried out by private cash-in-transit companies. Incresaing confidence for that particular currency is a must . Disruptions in making payments can impair trade and industry and can undermine confidence in the currency. Payments are therefore one of the key tasks of the European System of Central Banks (ESCB) and by extension also of the Deutsche Bundesbank. the Bundesbank, as part of the ESCB, is involved in creating a common standard for European payments. It is also responsible for monitoring payments; in doing so, it makes an important contribution to maintaining and strengthening the stability of the financial system. Furthermore the Deutsche Bundesbank assumes the tasks of opening, for the account of government institutions (and, in exceptional cases, credit institutions as well) letters of credit in favour of a foreign beneficiary and issues bank guarantees abroad. Refetences https://www.bundesbank.de/en/tasks/topics/monthly-report-mounting-signs-of-recession-897260 https://www.bundesbank.de/en/tasks/monetary-policy/inflation-frequently-asked-questions-866980 https://www.bundesbank.de/en/tasks/financial-and-monetary-system/financial-and-monetary-stability623914 https://www.bundesbank.de/en/tasks/banking-supervision/banking-supervision-622544 https://www.bundesbank.de/en/tasks/cash-management/cash-management-623362 https://www.bundesbank.de/en/tasks/payment-systems/-/tasks-and-services-626534 https://www.bundesbank.de/en/publications/reports/annual-and-environmental-reports/annualreport-2021-885944 Questions 1. How The Bundesbank identifies and assesses risks in order to maintain stability in the financial system of the country ? 2. As we know a stable economy can exist only if the country has stable banking system, How is the Bundesbank aims to supervise the banks ?
