Global | Central banks: from a restrictive to a flexible stance

Summary

Central banks have gone to great lengths over the past two years to rein in inflation and reiterate their commitment to achieving price stability.

Key points

• Key points:
• The majority of the world's economies have embarked on what has been one of the most aggressive interest-rate tightening cycles in recent history.
• Indeed, the Federal Reserve (Fed) has raised its fed funds rate by a total of 525 basis points (bp) since March 2022 to 5.25-5.5%, while the European Central Bank (ECB) has raised its key rate by 450 bp.
• Meanwhile, the Bank of England (BoE) has hiked rates by 400 bps, while the Latin American central banks with inflation targets in the countries' respective legal mandates have raised their rates by as much as 1,175 bp, in Brazil, and as little as 750 bp in Mexico.
• The biggest question now is when, and to what extent, monetary policy will be eased. Central banks in emerging countries; e.g. Brazil, Peru and Colombia, have acted first, cutting interest rates in the second half of 2023.
• Meanwhile, in developed economies rate cuts could be longer in coming. However, there are signs suggesting that the central banks could start lowering rates around mid-2024, to levels by the end of the year 75bp lower than at present.

Geographies

Topics

Tags