Global central banks remain focused on inflation and see continued growth despite war

  • ECB paves the way for rate hikes this year
  • Fed and BOE hike eye rates with above-trend growth
  • BOJ remains an outlier, seen as ultra-loose policy
  • Asia’s outlook is more confused with an uneven recovery

March 11 (Reuters) – Russia’s attack on Ukraine could slow global growth and create new economic risks, but major central banks remain focused on a fight against inflation that is expected to intensify.

With Europe perhaps most vulnerable to a wider economic shock from the war, the European Central Bank made clear on Thursday that the region could not turn its back on soaring eurozone inflation. . Read more

Calling the war a “decisive moment” that could dampen growth but boost inflation, the ECB decided to stop pumping money into the markets this summer, paving the way for possible rate hikes of interest later this year.

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“You can slice inflation any way you want and look at any core measure, it’s above target and up. We have a 2% mandate and we’re missing it,” an official said. ECB politician, who asked not to be named.

A similar narrative was emerging in other Western countries, including the United States, as officials weigh the potential damage to their economies from the war against persistently rising inflation.

Growth is expected to remain above trend in major economies, allowing them to focus on inflation much faster than their common benchmark of 2%. Read more

The Bank of Canada raised interest rates earlier this month.

The Bank of England and the Federal Reserve should do so next week. Each is expected to follow with further increases in the coming months.

Even fiscal policy makers – more sensitive to the politics of economic developments and often proponents of softer central bank policies – are acutely aware of the corrosive power of runaway price increases.

Inflation “is a major concern,” Treasury Secretary Janet Yellen said Thursday. “It hits Americans hard. It makes them worry about basic wallet issues.”

As consumer inflation in the United States hits a 40-year high, investors now expect the Fed to raise the target federal funds rate to between 1.75% and 2% d end of the year, a quarter of a point more than forecast last week. Read more

PROSPECTS IN ASIA MORE TROUBLED

Among the major central banks, the most outlying is the Bank of Japan, which is expected to maintain an ultra-loose monetary policy to support a still-fragile recovery, even as soaring energy costs push inflation towards its target of 2 %. Read more

“If crude oil and commodity prices drive up inflation while wage growth remains slow, it would hurt real household income and corporate profits, and hurt the economy,” the BOJ Governor Haruhiko Kuroda.

The monetary policy trajectory is less clear in Asia, where many economies have lagged their Western counterparts in removing tough pandemic restrictions.

For some central banks in the region, such as New Zealand, South Korea and Singapore, deep concerns about prices and imported inflation have already triggered policy tightening.

Australia’s top central banker warned borrowers on Friday that it would be prudent to brace for a rate hike this year with inflation expected to pick up. Read more

For most other countries in the region, the need to sustain a fragile recovery is likely to complicate deliberations.

Thailand’s central bank is unlikely to raise interest rates anytime soon despite inflation hitting a 13-year high as the war’s effect on tourism and trade has weighed on growth. Read more

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Reporting by Howard Schneider in Washington, Balazs Koranyi in Frankfurt and Leika Kihara in Tokyo; Editing by Dan Burns, Lisa Shumaker and Raju Gopalakrishnan

Our standards: The Thomson Reuters Trust Principles.

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