A significant shift in the global financial landscape is on the horizon, but the era of easy money is far from over. According to a detailed analysis by MUFG Bank, one of the world's leading financial institutions, global monetary policy is projected to remain accommodative well into 2026. This comes despite an anticipated peak in the current easing cycle expected in the 2024-25 period.
The Path of Global Monetary Easing
The report, titled 'Global Monetary Policy: Peak Easing in 2024-25', provides a crucial forecast for central banks worldwide. It predicts that the much-discussed pivot towards interest rate cuts by major central banks will reach its zenith in the coming financial year. However, this does not signal a swift return to tight monetary conditions. Instead, MUFG analysts project a scenario where policy settings remain broadly supportive of economic growth for an extended period.
The core finding indicates that the global policy rate will bottom out only by 2026, maintaining an accommodative stance. This prolonged period of easing is expected to have profound implications for global markets, investment strategies, and economic recovery trajectories, particularly in emerging economies like India.
Drivers and Implications of the Extended Accommodative Stance
Several interconnected factors are compelling central banks to adopt this cautious, extended easing approach. The report highlights that despite progress, inflation in many advanced economies is not yet decisively anchored at target levels. Central bankers are wary of repeating past mistakes by tightening policy too quickly and derailing fragile growth.
Furthermore, geopolitical tensions, supply chain reconfigurations, and the looming energy transition are creating persistent uncertainties. These elements contribute to a complex backdrop where policymakers prefer to provide a steady, supportive monetary environment. For India, this global context offers a window of relative stability in external financial conditions, which can aid in managing domestic inflation and supporting capital inflows.
What This Means for Investors and the Global Economy
The MUFG Bank report carries vital signals for stakeholders across the spectrum. The extended accommodative phase suggests that borrowing costs for governments and corporations may stay lower for longer than some market participants currently expect. This environment is typically favourable for risk assets, including equities and emerging market bonds.
However, the report also cautions that the 'peak easing' in 2024-25 means the most aggressive rate-cut cycles will be behind us by then. The subsequent years will likely see a more measured, gradual approach as central banks assess the impact of their initial cuts. Investors should, therefore, prepare for a shift from a phase of rapid policy loosening to one of sustained, but slower, accommodation.
In conclusion, the MUFG analysis paints a picture of a deliberate and elongated global monetary policy cycle. While the pace of easing will slow after next year, the overall direction will continue to support economic activity until at least 2026. This forecast provides a valuable framework for businesses, policymakers, and investors in India to plan their long-term strategies in a world where cheap money persists, but its abundance gradually diminishes.
