Saturday, December 2, 2023 | 00:25 WIB

Confusing signals on interest rate policy from Central Banks

Jakarta, IO – For those following policy developments of advanced economies’ central banks, the decisions by the respective Boards of Governors of the US Federal Reserve Bank (Fed), the European Central Bank (ECB), and the Bank of England (BoE) could be seen as confusing indeed. Fed Chair Jerome Powell just announced that the Board decided to delay its policy of raising the rate, currently at 5.25 per cent.

The American inflation rate has subsided to a present rate of just 4.05 per cent, lower than that of last month. The Fed did not say how long this decision would be valid. For sure, the inflation target, previously set at 2 per cent, is still far from achieved.

But other economic indicators are all right, even they could still be better. The worrisome development has been the large number of layoffs by Wall Street mega-banks, including Goldman Sachs, JP Morgan Chase, Morgan Stanley and Citi Bank, numbering in the tens of thousands. 

Meanwhile, the ECB is still battling inflation, as the Board decides to continue interest rate increases, up by 25 basis points to 3.25 per cent, responding to an inflation rate peaking at 6.1 per cent.

The Bank of England (BoE) upped its rate to 4.5 per cent, while the UK inflation rate is at 10.5 per cent. Both the ECB and the UK expressed concern about the specter of recession in coming days. Thus, the US Fed demurred to raise its rate, while both the ECB and BoE continued pumping theirs, in an effort to fight inflation.

Energy prices must have influenced the rate of inflation here, which implies that without the recent decline of oil and energy prices, inflation rates in EU and UK would have been steeper. 

Japanese economic performance has not budged much recently. The growth rate of their GDP is expected to come in at 1.8 per cent in 2023, settling to 0.9 per cent in subsequent years. 3.5 per cent inflation is anticipated, while the Bank of Japan rate is -0.10 per cent. Japan’s “mature economy” is stable yet on a slight declining trend, as a shrinking population growth rate shows. 


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