Central banks continue fighting inflation. Will it end soon?
Inflation has been weighing on the global economies ever since the coronavirus pandemic. While some countries managed to make some headway in the fight against it, others are still struggling to bring the soaring prices down. The situation is much better compared to a year ago. Despite that, the major central banks continue hiking interest rates. Emerging market central banks also maintained an aggressive policy in March.
The recent turbulence in the banking sector forced policymakers to take a more careful approach. Rising interest rates too fast and too high can cause an economic recession in the country. Investors were reluctant to see additional hikes because two U.S. regional banks collapsed in March. Over the last several years, the Federal Reserve took a hawkish approach, and some analysts expected the country’s economy to suffer. But before the banking problem, reports had shown the United States remained resilient. That news hasn’t helped to alleviate fears after the banking failure, though.
The U.S. central bank delivered a 25 basis point hike last week. The Fed also announced that it might continue increasing rates if inflation remains high.
The central banks were less hawkish in March
Most central banks continued tightening policy during the last month. But analysts pointed out that the pace and scale of rate hikes are tapering off. That is partly due to the banking sector’s turmoil. But the outlook is brightening again, and officials will likely rely on new economic and inflation data to decide whether they continue on a hawkish course.
In March, Britain, Australia, Norway, and Switzerland delivered rate hikes, U.S. Federal Reserve, and the European Central Bank. However, in Canada and Japan, policymakers preferred to keep benchmarks unchanged.
Wei Li, the global chief investment strategist at the BlackRock Investment Institute, noted that the Federal Reserve and other central banks showed that banking troubles would not stop them from delivering more hikes. The tightening will continue until inflation slows.
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