Inflation has been weighing on world economies since the coronavirus pandemic. While some countries have made progress in fighting it, others are still struggling to bring down the skyrocketing prices. The situation is much better compared to a year ago. Despite that, the major central banks continue to raise interest rates. Emerging market central banks also remained aggressive in March.
The recent turmoil in the banking sector forced politicians to take a more careful approach. Raising interest rates too fast and too high can cause an economic recession in the country. Investors were reluctant to see further increases because two regional US banks collapsed in March. In recent years, the Federal Reserve has taken a hawkish approach and some analysts have expected the country’s economy to suffer. But before the banking problem, the reports had shown that the United States remained resilient. However, that news has not helped alleviate post-bankruptcy fears.
The US central bank delivered a 25 basis point hike last week. The Fed also announced that it could continue raising rates if inflation remains high.
Central banks were less aggressive in March
Most central banks continued to tighten their policy over the past month. But analysts noted that the pace and scale of rate hikes are slowing. That’s partly due to turmoil in the banking sector. But the outlook is looking up again, and officials are likely to rely on new economic and inflation data to decide whether to continue on an aggressive course.
In March, Britain, Australia, Norway and Switzerland raised rates, the US Federal Reserve and the European Central Bank. However, in Canada and Japan, lawmakers preferred to keep the benchmarks unchanged.
Wei Li, chief global investment strategist at the BlackRock Investment Institute, said the Federal Reserve and other central banks had shown that banking problems would not stop them from offering more hikes. The adjustment will continue until inflation slows down.
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