MNI: Little Room For Rate Cuts Until Well Into 2024, OECD Says

Central banks in most advanced economies must keep interest rates at restrictive levels or even nudge them higher over the next year as core inflation stays hot, the OECD said Tuesday, even with "sub-par" growth being further threatened by China's slowdown and geopolitical turmoil.

"Monetary policy needs to remain restrictive until there are clear signs that underlying inflationary pressures are durably lowered," the Paris-based group's updated Economic Outlook report said. "This is likely to limit scope for any policy rate reductions until well into 2024 in most advanced economies."

"Some additional rate rises could still be needed where underlying inflation pressures are particularly persistent, but policy rates appear to be at or close to their peak in most economies."

While acknowledging headline inflation has tumbled the OECD bumped up projected core inflation across the G20 by 0.1pp this year and next, to 4.3% and 2.8%, respectively.

The OECD boosted this year's GDP forecast 0.3pp to 3% and lowered 2024 by 0.2pp to 2.7%, weighed down by China. Growth in the world's second largest economy was reduced 0.3pp to 5.1% this year and 0.5pp to 4.6% next year. That compares with U.S. growth boosted 0.6pp to 2.2% this year and 0.3pp to 1.3% next year thanks to resilient consumers.

"A sharper-than-expected slowdown in China has again become a key risk," the OECD said. "Illustrative scenarios suggest that an unanticipated one-year decline of 3 percentage points in China’s domestic demand growth could directly lower global GDP growth by 0.6 percentage points, and potentially by over 1 percentage point in the event of a significant tightening of global financial conditions."