Policy Brief: Are Central Banks behind the curve (again)?

As inflation reached its peak at the end of 2022 and has been falling since then, central banks may once again be late in adjusting their policies.
Number: 45
Year: 2023
Author(s): Lorenzo Bini Smaghi

There is no doubt that monetary policy reacted late to the rising inflationary pressures experienced in 2021-22. The major central banks subsequently caught up rapidly and hiked interest rates at an unprecedented pace. However, as inflation reached its peak at the end of 2022 and has been falling since then, central banks may once again be late in adjusting their policies.

bini smaghi

Executive Summary 

There is no doubt that monetary policy reacted late to the rising inflationary pressures experienced in 2021-22.

The major central banks subsequently caught up rapidly and hiked interest rates at an unprecedented pace.

However, as inflation reached its peak at the end of 2022 and has been falling since then, central banks may once again be late in adjusting their policies.

This note focuses on the European Central Bank, but the same analysis could be conducted for the other major central banks.

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