In many countries, consumer prices are rising significantly. Central banks would have the ability to counteract this via monetary policy means – by raising interest rates, thereby restricting access to credit and slowing down value creation. But as seen in Bloomberg’s latest forecast of central bank rates, not all central banks are of the opinion that timely countermeasures are necessary.
The European Central Bank as well as the United States’ Fed are likely to maintain their low interest rates until the end of next year. This is despite the aim of their monetary policy being to keep the inflation rate constant and around the two percent mark. The recent rise in consumer prices above the target of two percent is not seen as a reason yet for the central banks to intervene, as the inflation rate can be above this mark for a transitional period. ECB President Christine Lagarde is of the opinion that the measures to combat the coronavirus pandemic have “led to supply shortages in certain sectors”. As soon as these effects subside, in the eyes of the banks, inflation should fall again.
According to a Bloomberg forecast, interest rates are also expected to remain stable in Australia, India, Japan and Switzerland. Yet, other central banks could end the era of cheap credit more quickly. This includes, for example, Great Britain. Bloomberg analysts expect the central bank rate in the country to rise from 0.1 percent to 0.25 percent by the end of 2022.
In Argentina, Turkey and China, the forecast projects a cut in interest rates. China’s economy is not struggling with high inflation, but it is forecast to face a number of downside risks, including power shortages, virus outbreaks and weak consumption. According to Bloomberg, the People’s Bank of China will therefore presumably relax its monetary policy and support the economy by enabling more liquidity.
The monetary policy of the Turkish President Recep Tayyip Erdogan is criticized by the Bloomberg experts and described as “unorthodox”. In Turkey, consumer prices have risen by up to 19 percent. Turkey’s central bank recently lowered its key interest rate nevertheless and, according to the Bloomberg forecast, will do so again by the end of 2022. Erdogan is evidently of the opinion that high interest rates would conversely fuel inflation, while low ones stimulate loans and investments.
This chart shows projected interest rates of selected central banks by the end of 2022.
