Since early 2020, central banks across the advanced economies have had to choose between pursuing financial stability, low (typically 2%) inflation, and real economic activity. Without exception, they have opted in favour of financial stability, followed by real economic activity, with inflation last.

As a result, the only advanced-economy central bank to raise interest rates since the start of the Covid-19 pandemic has been Norway’s Norges Bank, which lifted its policy rate from zero to 0.25% on Sept 24. While it has hinted that an additional rate increase is likely in December, and that its policy rate could reach 1.7% towards the end of 2024, that is merely more evidence of monetary policymakers’ extreme reluctance to implement the kind of rate increases that are required to achieve a 2% inflation target consistently.

Central banks responded to the Covid-19 pandemic by pursuing unprecedentedly aggressive policies to ensure financial stability. But they also went far beyond what was required, pulling out all the policy stops to support real economic activity.

To continue reading,

Sign in to access this Premium article.

Subscription entitlements:

Less than $9 per month
3 Simultaneous logins across all devices
Unlimited access to latest and premium articles
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)

Stay updated with Singapore corporate news stories for FREE

Follow our Telegram | Facebook