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Inflation being a strong talking point for many central banks to bring back to target, the hiking cycle began at the beginning of last year. Now the scenario for many of the economies showing signs of easing in terms of inflation- with prolonged tightening and holding of bank policy rates, the time to cut the rates has come.
This phase is a crucial position for central banks since they need to be sure that their inflation indicators are going to remain cooled down for a considerable period. Many of the central banks especially the European and the United States of America have taken a data-driven approach to controlling inflation and their employment situation.
The initial approach of most big central banks was to follow suit with the Federal Reserve and tweak their policies. But the scenario has changed with time, considering the pace of recovery of various economies.
Scenes in European nations
In recent weeks, we have seen many of the European banks have taken steps to cut their interest rates down. To begin with, the Swiss bank cut its bank rate by 25 basis points and looks to cut more in the June meeting sometime this month.
Followed by the Swedish central bank, which did the same. Both of these economies did make a rebound in economic activity which was a difficult one, considering the rise in inflation.
On the other hand, the European Central Bank did make a surprise move by cutting its bank rate by 25 basis points. Though their inflation does not seem to be cooling as expected, and they were supposedly going by the data-driven approach, the cut was a bit of a risky approach. We can only hope that the future cuts could be a calculative one since this could put a lot of pressure on the economy.
Canada cooling its economy
Canada, the close neighbor of the United States, made a move by going in for a cut by a similar 25 basis points. It seemed to be a reasonable one since their inflation did see a trend of a cooling path. The rate cut seemed justified since most of their economic parameters seem to be doing well.
From the look of the moves from these banks are more in line with what is suited best for their respective economies. But the decisions, forward, should be more of a data-driven one. We all look forward to what steps the U.S. Federal Reserve is more likely to take in the weeks ahead. Let’s hope they take the correct steps. Many central banks including India have kept their bank rates unchanged, though anticipating strong growth. It is most likely due to the recent election results.
With these highlighted updates let’s anticipate the best would come in terms of the right decisions, benefiting the world economic outlook.
Well, going by the trend it seems that most of the economies are going for rate cuts but we must not put a rate-hike out of the picture, as it could be surprise moving forward in the later half of the year.