OECD calls for further interest rate hikes, citing persistently high inflation
2023.03.17 10:43
© Reuters.
By Scott Kanowsky
Investing.com — Inflationary pressures will require many central banks around the world to keep interest rates higher well into next year, according to a report from the Organization for Economic Co-operation and Development on Friday.
The OECD said headline price growth is projected to edge down gradually in most of the world’s largest economies to 5.9% this year before hitting 4.5% in 2024. Last year, the inflation figure for G20 nations came in at 8.1%.
The group said this expected drop stems mainly from elevated borrowing costs, easing energy prices following a milder-than-anticipated winter in Europe, and a decline in global food prices.
However, core inflation, a gauge closely watched by central bank officials that strips out volatile items like energy and food, “remains persistent” due to rising prices for services and labor market resilience.
“Monetary policy needs to stay the course until there are clear signs that underlying inflationary pressures are lowered durably,” the OECD said in a statement.
Meanwhile, the organization raised its outlook for growth this year to 2.6% from 2.2% in an update to its November economic forecasts. OECD Secretary-General Mathias Cormann noted that while the forecast is more optimistic than it was in late 2022, the state of the global economy is still “fragile.”
Risks are “tilted to the downside,” Cormann warned, highlighting “financial market turbulence” in particular. The OECD’s report, which was finalized amid growing fears in recent days over the health of the banking system, flagged that higher interest rates may continue to expose vulnerabilities in the sector.
Earlier this week, the European Central Bank by 50 basis points to 3%. But policymakers said they would not roll out further hikes until there is a cooling in the market turmoil that stemmed from the collapse of Silicon Valley Bank and a move by Swiss authorities to grant a liquidity lifeline to embattled lender Credit Suisse.
