Why aren't central banks currently lowering interest rates, which they had previously raised anti-inflationarily and for several months the inflation level has already been close to the inflation target?
Are central banks not lowering interest rates now, although they could do so given the drop in inflation, because they are afraid that inflation will rise again, or is it rather a matter of leaving the issue of interest rate cuts for the proverbial "black hour," i.e. is it rather to leave the issue of lowering interest rates to the proverbial "black hour", i.e. the occurrence of another economic crisis and crash in the capital markets, and to maintain the attractiveness of treasury debt securities, including above all treasury bonds, so that the cost of servicing the public debt does not increase significantly, so that citizens do not redeem treasury bonds but extend the term of their contracts for subsequent years, and so that subsequent investors, including foreign investors are interested in buying new series of treasury bonds issued?
As I write this commentary on the above question, it is early April 2024. Inflation, which had been rising rapidly since 2021 after the Covid-19 pandemic, then after central banks raised interest rates as early as 2022, inflation began to fall and fell particularly rapidly in 2023. In much of the developed world, falling inflation was already falling to near the inflation target in late 2023 or early 2024. Given the issues mentioned above, central banks could have already begun to cut interest rates, but they are still not doing so. Perhaps central banks are not lowering interest rates now, although they could do so given the decline in inflation, because they are afraid of a resurgence of inflation, or rather, the idea is to leave the issue of interest rate cuts for the proverbial "black hour," ie. the occurrence of another economic crisis and crash on the capital markets, and to maintain the attractiveness of Treasury debt securities, including above all Treasury bonds, so that the cost of servicing the public debt does not increase significantly, so that citizens do not redeem Treasury bonds but extend the term of their contracts for years to come, and so that subsequent investors, including foreign investors are interested in buying new series of Treasury bonds issued. Perhaps all of these considerations are taken into account and all of them to some extent determine the decision-making of interest rate committees (in Poland, the Monetary Policy Council operating at the central bank, i.e. the National Bank of Poland). In addition to this, other important factors that may be taken into account include the level of unemployment or, more broadly, the situation in the labor market, the level of economic prosperity in the economy, the issue of stability of the situation in the capital markets, the level of stock market indices on stock exchanges, the formation of exchange rates and the impact of this formation on imports and exports, the issue of the scale and share of long-term business and mortgage loans granted to citizens, entrepreneurs in previous years at variable interest rates. and the impact of changes in the oproc. of these loans by commercial banks during their repayment by borrowers on the economy's prosperity.
I described key aspects of anti-crisis soft monetary policy in the articles:
Synergy of post-2008 Anti-Crisis Policy of the Mild Monetary Policy of the Federal Reserve Bank and the European Central Bank
Article Synergy of post-2008 Anti-Crisis Policy of the Mild Monetary...
A safe monetary central banking policy as a significant instrument for liquidity maintenance in the financial system
Article A safe monetary central banking policy as a significant inst...
THE NORMATIVE ROLE OF THE CENTRAL BANK ON THE MONEY MARKET IN POLAND
Article THE NORMATIVE ROLE OF THE CENTRAL BANK ON THE MONEY MARKET IN POLAND
ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN CENTRAL BANK IN THE CONTEXT OF THE SECURITY OF THE EUROPEAN FINANCIAL SYSTEM
Article ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN C...
In view of the above, I address the following question to the esteemed community of scholars and researchers:
Are central banks not lowering interest rates now, although they could do so given the drop in inflation, because they are afraid that inflation will rise again, or is it rather a matter of leaving the issue of interest rate cuts for the proverbial "black hour," i.e. is it rather to leave the issue of lowering interest rates to the proverbial "black hour", i.e. the occurrence of another economic crisis and crash in the capital markets, and to maintain the attractiveness of treasury debt securities, including above all treasury bonds, so that the cost of servicing the public debt does not increase significantly, so that citizens do not redeem treasury bonds but extend the term of their contracts for subsequent years, and so that subsequent investors, including foreign investors are interested in buying new series of treasury bonds issued?
Why aren't central banks now lowering interest rates, which they had previously raised anti-inflationarily, and for several months now the inflation level has been close to the inflation target?
What do you think about this topic?
What is your opinion on this issue?
Please answer,
I invite everyone to join the discussion,
Thank you very much,
Best wishes,
Dariusz Prokopowicz
The above text is entirely my own work written by me on the basis of my research.
In writing this text, I did not use other sources or automatic text generation systems.
Copyright by Dariusz Prokopowicz
Only a remark: Inflation is a flow (change within a certain period), not a stock like the price index (value at a point of time). Therefore, one should not speak or write of an inflation level to avoid confusion. "Inflation" is sufficient.
Long-Term Impact: Central banks consider the long-term impact of their decisions on the economy and may choose to maintain interest rates to achieve a balance between inflation and other economic objectives.