How might central banks adjust monetary policy with moderating inflation?

Question

Accepted Answer

Central banks may avoid further monetary tightening when inflation moderates
Moderating inflation, driven in part by expectations of a restoration in oil supplies, could lead global central banks to refrain from additional monetary tightening. In that scenario, the focus would be on keeping existing policy settings rather than escalating tightening measures, since the inflation pressure is described as “moderate”.
Oil-supply expectations feed into moderate inflation
The prospect of peace between the United States and Iran, expected to culminate in a memorandum of understanding on June 19, was linked to improved market sentiment. This was tied to expectations that the Strait of Hormuz could reopen, supporting the flow of crude oil, LNG, and other commodities such as aluminium and urea.
Moderate inflation is linked to less pressure for tighter policy
Economist Dr Mohd Afzanizam Abdul Rashid said that anticipation of restored oil supplies had improved risk appetite among traders and investors. He added that this could lead to moderate inflation, where global central banks would not resort to further monetary tightening.
The policy implication is restraint rather than new tightening steps
The information available points to a specific direction for monetary policy: avoiding further tightening when inflation moderates. It does not specify particular instruments such as changes to interest rates, quantitative easing or quantitative tightening, or other operational tools.
Market conditions provide the backdrop for policy stance
The ringgit’s movement on June 15 reflected the same broader expectation of improved conditions, with the local note rising to 4.0485/0525 against the US dollar from 4.0555/0600 at the previous close. It also strengthened versus the Japanese yen and the British pound, while slipping versus the euro, indicating mixed currency reactions even as sentiment improved.

Reading history

Hide →

This history is cleared when the page is closed.

How might central banks adjust monetary policy with moderating inflation?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

3

0

0

Share with friends