Ravi Menon, Managing Director of the Monetary Authority of Singapore central bank said even though various central banks have shifted to a lower degree of an interest rate hike, the ongoing monetary policy tightening has some ways to go as the inflation numbers are still above targets.
The US Federal Reserve, the European Central Bank (ECB), and the Bank of England stepped down to a more modest range of 25 to 50 basis point interest rate hikes this year compared to the successive 50 to 75 basis point hikes last year. "With headline inflation coming off its peak, most central banks have shifted to a more moderate pace of tightening. But with inflation still well above targets, the tightening cycle has some ways to go," said Menon, speaking at the IMAS-Bloomberg Investment Conference, whose transcripts were available on MAS' website.
"The good news is that inflation seems to have peaked and come off a bit. The bad news is that it is still quite high."
He added expectations by some market participants that the tightening cycle will end soon and that central banks may even start easing are "excessively optimistic".
"Forward guidance by advanced economy central banks indicates further tightening to cool inflation. Both the US Fed and the ECB have reiterated their commitment to achieving their inflation targets of 2 per cent," he added.
Notably, consumer inflation in the US moderated to 6.4 per cent in January from 6.5 per cent in December, and 7.1 per cent the previous month but still is way above the 2 per cent target.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
The US central bank's policy rate is now in a target range of 4.50-4.75 per cent, the highest level in 15 years, and notably, it was near zero in the early part of 2022.
"The key challenge facing most central banks is to secure a return to low inflation without incurring too large a cost to growth or financial stability."
In his initial remarks, MAS' MD Menon also highlighted about key uncertainties that will drive financial market returns and risks over the short - medium - and long term.
They, according to him, are inflation, geo-economic fragmentation, and climate change.
( With inputs from ANI )
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