Global interest rates in sync

Below is a graphic from the IMF showing both developing and developed countries interest rate movements. Obviously during the the COVID pandemic interest rates were lowered to stimulate aggregate demand and reduce the debt burden on consumers and businesses. However with inflation now being well above the 2% threshold that most countries have as their target, interest rates have been on the rise. Central banks need to act resolutely to bring inflation back to their target, avoiding a de-anchoring of inflation expectations that would damage credibility built over the past decades. Although the war in Ukraine and the supply chain disruptions can’t be resolved by central banks, higher interest rates can slow aggregate demand and therefore reduce inflationary pressure.

IMF – Central Banks Hike Interest Rates in Sync to Tame Inflation Pressures – 10th August 2022

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