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Central banks battle inflation and political headwinds

Tuesday, March 7, 2023


With greater-than-usual uncertainty about the course of inflation and economic growth, decisions taken now by central banks will have a crucial impact on longer-term growth prospects and living standards. Central banks remain firm on tackling inflation, but face increasing political headwinds as their stance roils markets and depresses growth.


  • Growing internal divisions within central banks over the future trajectory for interest rates will damage their credibility.
  • Financial markets have underestimated how long central banks are intending to kept rates high, dampening any potential stock market rally.
  • Central banks are counting on inflation easing steadily but this could be derailed by tight job markets and the war in Ukraine.
  • Government efforts to limit the economic impact of rate rises will add to public debt, worsen political tensions and affect the bond market.
  • The strong US dollar will stir resentment in Europe and weaken emerging market nations, especially ones with large dollar-denominated debts.

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