Raising interest..solution and normalization

The debate is still raging around the world about determining the appropriate interest rates, and how long will they keep rising? How long will inflation remain raging? In a report published by Al-Eqtisadiah to search for an answer to these questions, the talk of specialists was focused on one point, which is that the world will raise interest rates until inflation declines, and the issue may not have a ceiling, but there is hope that inflation rates will respond and stop growing before they start in retreat.
This glimmer of hope came in the statements of the French Finance Minister, where he said: “Today we are at the peak of inflation, and it will last a few weeks or even a few more months, and with the beginning of 2023, we will start to see inflation decline.” Inflation in the European Union reached 8.1 per cent in one year in May, not since the adoption of the euro, and four times higher than the European Central Bank’s 2 per cent target.
And if the picture is like this, it is natural for central banks to raise interest rates in the coming months, according to economists at the International Monetary Fund and that “central banks should play a role when there is an element of inflation caused by demand, as is the case now. In these words of optimism, as much as they bear ambiguity, linking what central banks are doing around the world today and that the inflation component is caused by demand is the difficult question in normalizing today’s rates, as described by the International Monetary Fund expert.
This ambiguity is illustrated by the mechanisms for issuing the European Central Bank’s decisions to tighten lending policies that came from a minority of members of the decision-making bodies of the European Central Bank in favor of tightening the borrowing policy, as they succeeded in imposing this view as a necessary measure against high inflation, and the reason for the reluctance that seemed clear In the European Central Bank, the timing is difficult, because part of the reasons for the rise in prices are due to the war, and here is a context of uncertainty about the appropriate extent of raising the interest rate, which may lead to fueling inflationary trends if it is not sufficient, or may lead to precipitating the recession, By affecting the borrowing capacity of households and firms, especially as the slowdown in growth has already hit France and Germany.
From this discussion about the appropriate interest rate that erupted in the United States months ago, and actually began to adjust the interest rate periodically, followed by the Bank of England, and even the Reserve Bank of India, which decided to raise the key interest rate by 50 basis points to 4.90 percent, which is More than the expectations of analysts and markets, which were at 4.80 per cent, after which the Central Bank of India responded, saying that it had taken this step in order to maintain the growth of his country’s economy during the current fiscal year.
Despite this increase in the interest rate, the Central Bank of India has stated that the risks of high inflation still exist, and that it expects the inflation rate during the current fiscal year to be in the range of 6.7 percent, exceeding all expectations, and that the reason for inflation is deviating from the expectations drawn for it in India. It goes back to the Russian war, which is also the reason for the Polish central bank’s decision to increase the key interest rate to 6 per cent, from 5.25 per cent.
There is no doubt that uncertainty and uncertainty continue to stare at the global economy since the Corona pandemic, which forced central banks and governments to follow very flexible measures in order to provide liquidity, which today has become the biggest threat facing the global economy with inflation reaching significant levels of more than 6 percent worldwide. , and if the natural measure is to raise the interest rate to curb demand, then the entry of the war in Ukraine on the course of economic events in terms of their impact on supplies, has made part of the inflation hostage to this war that no one in the world has to stop, and the question that seems a little confusing is the ability On understanding the potential impact of the war on prices, and the residual effect of rushing demand after the Corona pandemic, it is that which determines the most appropriate interest rate, and answering this question means the difference between curbing inflation, sustaining growth and causing interest rates that are too high or accelerating to slow down.
Because there is not enough time to stand and answer, the world is moving towards raising interest rates, as long as inflation remains raging as well. Recession is more merciful than inflation, and until the picture becomes completely clear, it is fair that the most vulnerable people are not exposed to threats because of high prices.