Over the past two years, the US Federal Reserve has increased its benchmark rate 11 times to contain inflation. The effects of these rate hikes are now visible as inflationary pressure is decreasing in the world’s largest economy.
Read More: Mumbai Local Train: Indian Railway Announces 4 Special Trains On New Year’s Eve, Check Route, Timing
Following a similar path in interest rate hikes and inflationary pressure, the Reserve Bank of India (RBI) is almost done with rate hikes and has kept the rates unchanged since early 2003.
Globally, the tone of monetary policy has also become less hawkish, suggesting that the most challenging phase of the cycle of increasing interest rates is now behind. This positive development has opened up the possibility of interest rate softening in 2024 to support economic growth.
“While holding the target federal funds rate steady, US Fed Chair Jay Powell signaled a clear end to the rate hike cycle. Powell mentioned that the benchmark rate was now likely at or near its peak for this tightening cycle. Powell’s comments also suggested that the Fed is willing to cut rates before inflation drops to 2 per cent and not make the mistake of overrestricting the economy,” points out a report from TruBoard Partners.
The latest Indian Economic Monitor by DMI Finance states that global central banks are increasingly signaling that they see the battle against inflation as nearly over and that their policy bias is shifting toward lowering rates in 2024 to try to ensure continued economic expansion.
The statements made in the latest monetary policy committee meeting (MPC) in December, both by the MPC members and the RBI Governor, were not as hawkish as market experts anticipated. The members have shown confidence in the growth trend, with GDP projections being upgraded and a slowdown being expected in prices.
“Heading into 2024, the central banks’ tone has begun to shift. In contrast to its higher-for-longer message just two months ago, the US Fed has now readied itself to talk about rate cuts,” states Quantum Mutual Fund.
“More importantly, the Fed doesn’t see a recession as a pre-condition for rate cuts; “just a sign that the economy is normalizing and doesn’t need the tight policy” will be enough for the FED to move,” states Quantum.
“With Governor Das repeatedly highlighting that a pivot is off the table unless inflation aligns with the 4 per cent medium-term target on a sustainable basis, we do not expect any further rate moves for the rest of the fiscal year,” says a report from Barclays.
However, there are also important lessons for central bankers, especially regarding the threat of inflation in the context of geopolitical tensions. Amid speculations about US-China or US-Iran and China-Taiwan tensions, unexpected past events like the Russia-Ukraine conflict and the Israel-Hamas conflict underscore the importance of central bankers staying vigilant.
Read More: Petrol, Diesel Fresh Prices Announced For December 27: Check Fuel Rates In Your City
The recent spurt in Covid cases in some parts of the world will also add to the challenges, as seen earlier in 2020 when supply chain disruptions pushed prices higher. Given these complexities, central bankers have to remain alert.
