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Global central banks were on the same page. Ukraine may reshape that

The risks included a near immediate spike in the price of oil to above $100 dollars a barrel, and the longer-term imponderables of what the revival of European land war could do to confidence, investment, trade and the financial system.

February 25, 2022 / 06:50 AM IST
US Federal Reserve| Representative Image

US Federal Reserve| Representative Image

The well-scripted turn by global central banks towards tighter, post-pandemic monetary policy has been thrown into doubt by Russia's invasion of Ukraine, a geopolitical upheaval likely to be felt differently across the world's major economic centers even as it poses some common risks to global growth.

The risks included a near immediate spike in the price of oil to above $100 dollars a barrel, and the longer-term imponderables of what the revival of European land war could do to confidence, investment, trade and the financial system.

To many analysts that has increased the likelihood that central banks, having positioned themselves for a head-on fight against inflation while expecting continued strong economic growth, may now see prices continue to surge while growth ebbs - a situation not easily resolved with standard central banking strategies.

"For the major advanced economy central banks the intensification of the war now leaves them in a distinctly worse position," Oxford Economics analysts wrote. "The high starting point for inflation...will make it hard for central banks to ignore the near-term upward forces on inflation. But at the same time, they will be aware that the latest developments increase the risks of very low inflation in late 2023 or 2024 due to a weaker growth outlook."