Introduction | Asfand Ahmed Khan

The author, Asfand Ahmed Khan is a Ph.D. Scholar of Management and financial expert of years established in his profession. The views expressed in this article are solely the author’s own and do not represent the views of any employer or organization.

Central banks have been hailed as economic masters for a very long time. Their main tool was interest rates. They wielded it to quash inflation and promote growth and whatnot! The post pandemic landscape challenges this notion. In my humble opinion, these would not be working now.

Confronting Supply Side Inflation

This latest inflation was fundamentally different: It wasn’t just overheated demand. It resulted from a series of supply shocks. These ranged from paralyzed logistics to energy disruptions. On the other side, Central banks cannot fix a port with a rate hike. They can’t bring down energy costs, not without direct subsidies. Their tool is a blunt instrument. It risks a recession to curb external price rises.

The Debt Overhang Dilemma

Historical global debt is also a constraint. High rates translate into higher debt servicing costs, with many countries and nations lingering in perpetual ‘debt trap’. This sets up potentially contradictory balancing acts. Hike rates too high and you court debt crisis – acting like a double-edged sword. Raise them too little, and inflation can become entrenched. Policy makers are faced with a choice between two poor outcomes.

Conclusion | POV Asfand

According to the author, Asfand Ahmed Khan, we are in an era of diminished central bank influence (Crypto, it is a debate for some other time). The market is also becoming increasingly skeptical towards them. Their models struggle with deglobalization and strife. Their job description is changing from masterful pilot to crisis manager. Future stability would be determined by a more intricate interlace: it may be a heavy fight between the fiscal policy and global diplomacy. There are other similar blogs written by the author that describes the challenges faced in IT by the financial analysts.