Kenneth Rogoff, Economist, Professor at Harvard University, believes that central bankers are behind the curve when it comes to handling inflation. He explained that inflation is on the higher side and the Russia-Ukraine war will only aggravate it further. According to Professor Rogoff, the kind of inflation that is currently seen is not good for growth and it has made Central banks’ task of curtailing it even tougher.

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He said, "We were already in a situation where inflation was uncomfortably high, very high in the United States, central banks had fallen behind the curve and they were already nervous about how much and how fast they can raise rates, there is no question, this (Russia-Ukraine war) makes it worse. This is absolutely pushing inflation up."

"Oil prices now, shooting up over USD 110 per barrel, metal prices, food prices, sustained uncertainty, it's obviously not good for growth. This kind of uncertainty discourages investors, consumers, etc., so I think it makes central banks' task of trying to rein in inflation harder," he explained.

He further added, “The global economy was coming out of the pandemic, so it’s not catching us on a back foot in that way. I do not think Russia is that big in the global scheme of things. So if the war stays contained, then the global economy will continue to grow but more slowly than it would have otherwise.”

On Fed Chair Jerome Powell’s intention of hiking interest rates by 25 bps in the March meeting, he pointed out that interest rates need to go above the inflation rate in the US. He believes the US Fed needs to raise interest rates over the next two years if they wish to combat inflation. He feels there may be 6-8 rate hikes in the US. He said an interest rate of 2 percent will be seen in the US, going ahead.

Also Read: Russia-Ukraine war: Experts say India should divert some oil, defence trade away from Russia

Professor Rogoff believes Russia was prepared for all kinds of sanctions. He thinks there’s a need to ramp up sanctions on Russia. He concurred that sanctions have definitely made it tougher for Russian Banks to operate globally. While there will be a controlled financial crisis as a result within Russia, the scale of issues won’t impact the global financial system, he shared.

“Russia was somewhat prepared for this; not as much as it was done, and overtime, if these sanctions do not ramp up, things will adjust. It will hurt Russia the most but of course, it is going to hurt anyone who depends on trade with Russia,” he said.

“Certainly, within Russia, there is going to be controlled default, controlled financial crisis. The sanctions have made it very hard to contain their banking problems even as oil prices are high. Russia will have a repressed financial crisis; if it has one, but going outside, Russia is not that big in the global economy, so there can be some individual banks, dependent on Russia, could have a problem but the scale of this has not reached the point where it is rippling around the globe in terms of the financial crisis,” said Rogoff.

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(Edited by : Dipikka Ghosh)

First Published:Mar 4, 2022 1:20 PM IST