After hiking rates at its last meeting on November, the BOE will likely keep an unchanged policy stance for now. But this status quo would be concealing a tricky set of deliberations, in an environment in which the risk of a policy mistake is uncomfortably high. And that risk is unlikely to diminish any time soon.
There is an international topic that is unlikely to be discussed much this week, yet potentially presents the biggest risk to the global economy from the central banking community, including the Bank of Japan and the People’s Bank of China.
With the improvement in the outlook for global growth -- which involves the world’s four major economic areas (China, the euro zone, Japan and the U.S.) -- and with somewhat better prospects for a more comprehensive pro-growth policy response, especially in the U.S., central banks face mounting internal and external pressures to start or accelerate the normalization of their unconventional monetary policy stance. How and when each decides to do so will be guided predominantly by domestic considerations. Yet, the net result for the global economy will also be a function of the cumulative aggregation of these institutions’ actions, as well as their interactions.
Fortunately, this community has developed the means for the closest cross-border consultations among all economic policy-making entities (including fiscal and trade), especially under the auspices and convening power of the Bank for International Settlements (sometimes called the central bank of central banks). These institutions will need to smartly share insights if the world economy is to avoid a big risk to a welcome, but still tentative, improvement in its ability to deliver higher, more durable and more inclusive prosperity.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco.
This column was provided by Bloomberg News.