MNI POLICY: G20 CenBanks Worried By Optimistic Rates Markets

Central bankers gathered at the G20 meeting in Sao Paulo discussed the disconnect between their own expectations for inflation and interest rates and investor expectations, which they fear could loosen monetary conditions prematurely, MNI understands.

In some countries, including some already in the easing cycle, markets are over-optimistic about inflation, officials fear. This leads investors to price in rates cuts too aggressively, they consider.

At least one country’s central bank stressed the importance of short-term guidance in the meetings, though it agreed with the need to keep monetary policy data-dependent and not to give too many clues about the pace or final magnitude of rate cuts, as these clues could be misinterpreted by investors. (See MNI INTERVIEW: Forward Guidance Key Tool However It is Called)

Central bankers and finance ministers from the G20, which groups the world’s largest economies, have gathered in Sao Paulo this week, with hosts Brazil encouraging discussions over social inequality. Technological innovation and financial stability have also been discussed, according to reports.