Washington: A hike in interest rates by central banks around the world could trigger a global recession in 2023, the World Bank has warned, media reports have said.
According to the BBC report, the World Bank said central banks raised rates “with a synchrony not seen in the past five decades” to deal with rising prices.
Raising rates to try to slow the pace of price increases makes borrowing more expensive. But it also makes loans more expensive, which can slow economic growth.
The World Bank warning comes ahead of monetary policy meetings of the US Federal Reserve and the Bank of England, with key interest rates expected to rise next week.
The World Bank said on Thursday that the global economy was going through the sharpest recession since 1970, the BBC reported.
It said a study found that “the world’s three largest economies – the US, China and the euro area – are slowing down sharply”.
“Under the circumstances, even a minor hit to the global economy next year could turn it into a recession,” it said.
The World Bank called on central banks to “minimize the degree of need” to coordinate their actions and to “clearly communicate policy decisions”.
Inflation, which is the rate of increase in prices, has reached a 40-year high in the US and UK in recent months. This was driven by higher demand as pandemic restrictions were eased, and as the war in Ukraine boosted energy, fuel and food prices.
In response, central bank policymakers have raised interest rates to quell demand from homes and businesses. However, large rate hikes increase the risk of a recession because it could slow the economy, the BBC reported.