Prepare for big central banks moving out of step: policymakers

Excessive stimulus has pushed inflation to multi-decade highs around the world

BRUSSELS:

The world’s biggest central banks, moving in tandem at the height of the pandemic, are set to tighten policy at vastly different speeds, likely increasing economic and market volatility this year, top policymakers said on Friday.

Central banks unleashed unprecedented stimulus in recent years to prop up growth but excessive cash has now pushed inflation to multi-decade highs around much of the world, raising fears that policymakers are falling behind the curve.

The US Federal Reserve is likely to lead the way, hiking rates possibly as soon as next week, while the Bank of Japan, sitting at the other end of the spectrum, is likely to keep policy exceptionally loose for years to come.

“The issue here is that what the Fed does, has implications for the US, it has implications for other countries, especially those that have high levels of dollar denominated debt,” IMF Managing Director Kristalina Georgieva said.

“That could throw cold water on what for some countries is already a weak recovery,” she told a World Economic Forum panel, adding that countries with high dollar debt should refinance now.

Indeed, expectations for quicker Fed action have already pushed up borrowing costs across the world and the yield for 10-year German bonds briefly moved into positive territory this week for the first since early 2019.

Georgieva said containing the pandemic and boosting vaccination rates was imperative to address the widening gap between rich and poor countries, and to secure future growth for all.

Published in The Express Tribune, January 22^nd, 2022.

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