INTHEBLACK April 2022 - Magazine - Page 28
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the form of rising inflation rates in advanced
and emerging economies, driven by increased
demand, supply shortages and rising commodity
prices.
In fact, not only has the inflation “genie”
escaped from its bottle as business and
consumer spending levels have soared, now
that it’s out, it may be difficult to bring it back
under control.
These factors are advancing the prospect
that central banks will start shifting their
conventional monetary policy levers again
by lifting official interest rates.
ON ALERT
Getting the right balance will be critical in
order to avoid derailing the global economic
recovery.
“Policymakers must walk a fine line
between remaining patient in their support
for the recovery and being ready to act
quickly,” say Francesca Caselli and Prachi
Mishra, International Monetary Fund (IMF)
economists, in a recent blog post.
“Even more importantly, they must establish
sound monetary frameworks, including triggers
for when they would reduce support for the
economy to rein in unwelcome inflation.
“Authorities must be alert to triggers for
a perfect storm of price risks that could be
individually benign, but, when combined,
28 ITB April 2022
“POLICYMAKERS MUST
WALK A FINE LINE
BETWEEN REMAINING
PATIENT IN THEIR
SUPPORT FOR THE
RECOVERY AND BEING
READY TO ACT QUICKLY.
EVEN MORE
IMPORTANTLY, THEY
MUST ESTABLISH
SOUND MONETARY
FRAMEWORKS,
INCLUDING TRIGGERS
FOR WHEN THEY WOULD
REDUCE SUPPORT FOR
THE ECONOMY TO REIN
IN UNWELCOME
INFLATION.”
FRANCESCA CASELLI AND PRACHI MISHRA,
INTERNATIONAL MONETARY FUND
may lead to significantly more rapid increases
than predicted in the IMF’s forecasts.”
In this context, some believe the use of
monetary policy as an economic tool has
effectively reached its limits.
“The Reserve Bank of Australia’s [RBA]
previously powerful cash rate tool is already
near zero, and is expected to be there for quite
some time,” says Paul Bloxham, HSBC’s chief
economist for Australia and New Zealand.
“Very loose monetary policy settings are
starting to cause other problems, including
a housing boom that now requires tighter
prudential settings.
“At the same time, growth is being primarily
supported by fiscal policy – which has made sense
during the pandemic. But it is also increasingly
clear that more fiscal support will be needed to
help the RBA achieve its inflation target.”
A NEW ECONOMIC CRISIS?
Walking the fine line between the use of
conventional and unconventional monetary
policy measures for economic support, without
going too far one way or the other, is a delicate
balancing act for central banks.
A “global readjustment process” could be
looming as a result of the expansive policies
central banks have needed to undertake, notes
Dr Carmelo Ferlito, chief executive of the
Malaysia-based Center for Market Education.