In the war against inflation, 16 central banks raised benchmark interest rates at their September and October meetings. The Reserve Bank of India joined the bandwagon last week, raising the repo rate by 25 basis points after nearly three-and-a-half years. It also shifted its stance from neutral to calibrated tightening, a stance last adopted in October 2018.
The world has entered a higher-for-longer interest-rate scenario. Elevated rates lower inflation by making borrowing pricier and cooling economic demand. The impact is seen after a lag as households re-adjust spending and companies reconsider investments due to rising interest outgo and dearer crude-linked raw materials.
Despite negative supply shocks from oil prices, the global economy has remained resilient, said Kristalina Georgieva, managing director of the International Monetary Fund (IMF). How long that resilience will last is uncertain as the West Asia war continues. The artificial intelligence (AI) capex boom, persistently high energy prices, tariffs and record public debt all add to inflationary pressures, cautioned IMF.
Hopes are tempering. The World Bank projects global economic growth to slow to 2.5% in 2026 from 2.9% in 2025. The UN Trade and Development estimates global growth at 2.6% this year, versus 2025’s 2.9%.
Tightening cycles are not new, but this one could differ from 2022, when the supply shock was relatively short-lived. Crude prices have climbed from around $70 a barrel to $98-100 a barrel in seven months, adding to economic pressures, while El Niño is fuelling concerns over food inflation.