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Finance & InvestmentMon, 27 Jun, 22

Inflation And Restrictive Monetary Policy To Reduce World Growth

Inflation And Restrictive Monetary Policy To Reduce World Growth

Rating agency fitch has reported that Global inflation pressures continue to intensify, with increasingly adverse implications for the growth outlook.

It is against this backdrop that fitch in its short-term market update is reporting that the pressure is building for the Fed and Bank of England to raise interest rates quickly to levels that will actually start restricting domestic demand growth – i.e., to above the so-called ‘neutral’ rate which neither boosts nor constrains the economy.

‘We believe this is where the Fed is headed and expect 50bp increases at each of the next four meetings in June, July, September, and November, and then two more in 1Q23. In the UK, we expect the BOE to raise rates to 2% by end-2022 and to 2.5% by 4Q23’.

The update also reveals an announcement of plans by European Central Bank to begin normalizing key policy rates. Following the end of its Asset Purchase Programme and an expected 25bp hike to the MRO in July as choreographed, we expect the ECB to follow through with a stronger 50bp increase in September.

Thereafter we expect rate rises to proceed more gradually given the eurozone’s fragile growth outlook and lower core inflation.

 

Source: FITCH

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