Central Banks in an era of Climate uncertainty

Our readers will not need us to tell them that we live in a time of heightened uncertainty and tension. With wars in the Middle East and Ukraine, economic hardships in much of the West due to inflation and high interest rates, and volatile and unsettled weather patterns across the globe, there is much to cause concern. For central banks trying to steer economies between the Scylla of inflation and the Charybdis of recession there are few easy answers. And if anything the questions are getting more urgent and challenging.

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The outlook for official interest rates

Market sentiment towards central bank official interest rates has changed quite sharply in the first few weeks of 2023, and there is a definite feeling in the air that the rate of interest rate rises we saw in 2022 will ease, and perhaps that the rises may even soon come to an end. While there are definite reasons for the extreme pessimism of the latter months of 2022 to be lifting, we think it may be premature to declare that central bank tightening has run its course.

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