4 min read.Updated: 08 Sep 2017, 05:00 AM ISTB. Prasanna
Low inflation, benign growth impulses, strengthening labour markets and easy financial market conditions provide a 'Goldilocks scenario' for central banks
Macroeconomic data of the past few months from G7 economies is increasingly showing evidence of rising growth momentum. The annual rate of real gross domestic product (GDP) growth is running above the long-term (15-year) average in the US, eurozone, UK, Japan and Canada. The leading business confidence surveys and the Purchasing Managers Index (PMI) are also pointing at an upturn in growth. The only missing piece in an otherwise brighter picture is the soft inflation which has been fairly acknowledged in recent statements by major central banks, including the US Fed and the European Central Bank (ECB). However, their rhetoric suggests that it will take some time before inflation converges towards their target. This reflationary environment and consequent hawkish shift in major central banks’ communication, coincident with improvement in their respective domestic and exogenous risk environment, has brought monetary policy normalization into focus.
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