A Federal Reserve rate rise would have a bigger impact because
emerging markets, particularly China, are more integrated into the
global economy than before, countries are more interlinked in
production, cross-border capital flows have increased, and forward
guidance has become a crucial monetary policy instrument, Constancio
said.
The Fed skipped a chance to hike rates in September but policymakers
have repeatedly said the United States is on course for a hike later
this year with some suggesting a move as soon as October.
An additional hurdle is that central banks do not have experience in
raising interest rates from an extended period at zero, so they will
have to learn through practice, without a full understanding of how
economies and markets may respond, Constancio told a conference in
Hong Kong.
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The biggest global impact of a Fed hike will be through capital
markets, not international trade, and German yields already follow
the change of U.S. yields in response to Fed tightening by more than
one third, Constancio said.
"Overall, the evidence even suggests that spillovers from U.S.
monetary policy might be larger (on the euro area) than the domestic
effects in the U.S.," Constancio said.
While diverging monetary policies reflect differences in
fundamentals in the euro zone and the United States and the
traditional view is that this should create no problems, "this time
the divergences could have greater global repercussions than in the
past", Constancio said.
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Given the dollar's rise in international capital markets and the
market's integration, there's no institution large enough to handle
extreme stress and it is a mistake to think central banks can solve
all problems.
"With huge amounts of debt in U.S. dollars being created around the
world without liquidity backstops, we are still far from having a
global lender of last resort adequate for our times," Constancio
said.
"The global economy has become more vulnerable than ever before to
very large real and financial spillovers," he added.
(Reporting by Balazs Koranyi; Editing by Leslie Adler/Ruth Pitchford)
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