Inflation and price stability

1. Why protection underpins savings reform

Speaking in Rome in his first public appearance as head of ESMA, Carlo Comporti ties protecting small investors to Europe's drive to turn household deposits into productive investment. Shifting money out of deposits brings new risks, so savers need knowledge and confidence to compare returns with the damage inflation does to purchasing power. The three European supervisors split roles but cooperate: they are about to publish a shared catalogue of financial education projects, and ESMA works with its insurance counterpart on the retail investment strategy.

2. Substance over paperwork

Protection should be judged by what investors actually grasp and do, not by whether a form was supplied. Screen design on digital platforms, such as rankings, alerts and speed, can steer choices, and piling on disclosure may backfire. Firms stay accountable for how they design, target and distribute products. Simplification must make safeguards clearer and proportionate rather than weaker, covering design, sales information, and complaint handling after purchase. Digital tools and AI can help, provided systems stay resilient and data is shielded from cyber, quantum and AI-failure risks.

3. Measuring real outcomes

Supervisors should still audit controls, yet also test results through data analysis, consumer research, behavioural studies and mystery shopping. National authorities bring local insight, while the three European bodies must look at the customer who mixes banking, investment, insurance and crypto services. Consumer groups' evidence helps show whether rules work, and success would raise trust and participation in European capital markets.

1. A shock-laden outlook

Speaking in Rome on World Savings Day, Fabio Panetta describes saving as a pact with the future that holds only if savings fund growth and keep their value. Both are being tested by geopolitics, energy and artificial intelligence. The Gulf conflict and the shutdown of the Hormuz shipping lane pushed fuel and gas to record levels and revived inflation, yet output held up, mainly thanks to the AI boost to trade, investment and share prices. That engine is also a risk, because expectations for AI profits can change quickly, as recent tech share corrections and wider credit spreads show. Long-term government yields are climbing in major economies on inflation expectations, delayed fiscal adjustment and heavy borrowing by big tech firms, with possible pressure from Japanese investors repatriating funds. High debt countries suffer most; Italy's deficit has fallen from 9% of output in 2020 to about 3%, bringing rating upgrades, and he urges it to stay the course.

2. Euro-area monetary policy

Consumer price growth has risen from about half that level in February to 3.8%, almost entirely from energy, with limited spillover so far: renewable power has cushioned gas costs, core inflation is near pre-conflict levels, and wages and expectations are contained. Growth of about 1.2% is projected for this year and next, with unemployment at lows and digital services supplying a third of value-added growth. Risks, however, point to higher prices and weaker activity as the conflict drags on and European gas stocks must be rebuilt. The ECB raised rates by half a point between June and September and held them this week. Policy cannot stop energy-driven price rises but must prevent them from embedding in expectations and a wage-price spiral, which would hurt savers and poorer households; further increases may be needed, tempered by tighter market conditions, with decisions taken meeting by meeting and clearly explained.

3. The European paradox

Europe is squeezed between Chinese competition in advanced sectors and a lag behind the United States in AI. US value added grew twice as fast between 2019 and 2025, with productivity, partly from technology, explaining the difference, and the most innovative American software firms spend many times more on research than European rivals. Europe still performs well in publications but lags in patents. Money is not the shortage: the euro area saves a quarter of its income and sends roughly 300 billion euros a year abroad, with about 785 billion flowing to the United States in 2024-25. What lacks are specialised intermediaries, deep capital markets and attractive projects. Households hold only 5% of gross wealth in listed equities against 25% in America, though counting unlisted business stakes lifts the figures to 20% and 35%, and venture capital and private equity are hampered by fragmentation.

4. What Europe should do

He backs the Savings and Investments Union, with larger institutional investors, easier cross-border activity and stronger European market supervision modelled on the banking supervisory mechanism, which blends central leadership with national knowledge. He also wants the banking union completed, with deposit insurance covering all depositors and a design that avoids splitting large and small banks, plus a safe, liquid European asset to attract foreign capital and strengthen the euro. Finance must be matched with a true single market, harmonised rules, competitively priced energy and joint research and infrastructure spending.

5. Saving in Italy

Italian household saving has declined since 2000 because real income per head slipped while it rose more than a quarter in France and Germany, wages stagnated with weak productivity, real interest rates fell, credit became easier, and households aged and shrank. Longer lives now add a reason to save. Supplementary pension schemes have over ten million members, about 40% of the labour force, with assets above 11.5% of output, but young people join less and struggle with insecure, low-paid work, particularly young women. His answers are growth that stabilises careers, wider automatic enrolment, savings tools opened from birth, simple and cheap accounts like those the Commission proposes, financial education in schools, consolidation of small, costly pension funds, and life-cycle plans with a modest allocation to diversified, higher-return assets, always guided by members' interests.

6. Conclusion

Europe and Italy are wealthy but fail to turn that wealth into innovation and productivity. Price stability and prudent public finances protect savings but are not enough; protecting them requires an economy that grows, supports welfare in ageing societies, and gives young people work, independence and a future.

1. The decision

The Bank of Canada lifted its policy rate by a quarter point to 2.5%, its first increase since mid-2023. Two things changed since July: the inflation outlook worsened as the Middle East war keeps oil prices high, and the growth outlook improved slightly despite continuing US trade measures.

2. Economy and projections

Output expanded by 3.3% during the spring quarter, helped by consumers, energy and equipment investment, and resilient exports. Growth should dip at year end on new US tariffs, then recover to roughly 2% in 2027 and 2028 after 1% this year. Unemployment sits near 6.5% with some slack. Inflation hovers around 3%, may reach 3.5% by December, and returns near the 2% goal around mid-2028. Short-term expectations have risen; longer-term ones are anchored.

3. Why raise rather than hold

Holding was defended because inflation excluding gasoline is 2.2% and core measures are near 2%. Raising won because fuel costs stay high, firms are expected to pass on more costs, and recovery removes the cushion that would offset them. Council will decide meeting by meeting and may tighten again, carefully.

1. Policy decisions and inflation

Governor Michele Bullock tells a Senate committee that the board has raised the cash rate target by a further quarter point since June, bringing this year's total tightening to a full percentage point. Inflation, which had fallen from its 7.9% peak back into the 2 to 3% target band during 2024 and 2025, rose again in the second half of 2025 and now runs around 3.5 to 4%. Her warning is that prolonged deviation from target can embed itself in expectations, prices and wages. August forecasts saw a return to the target midpoint only in late 2027, and several upside risks have since materialised.

2. Global and domestic pressures

The Middle East conflict has re-escalated and energy prices are far above the August assumptions, feeding directly into prices and indirectly through transport costs. Short-term expectations are high, and the AI boom and extreme weather push up farm and technology prices. Still, much of the problem is homegrown: underlying measures excluding volatile items show demand-driven pressure, the labour market looks tighter than thought, and weak productivity means stronger growth would quickly add price pressure. A further period of subdued demand growth is therefore needed. Policy works with a lag, so recent increases have not fully acted.

3. Activity, housing and households

Effects of the conflict on activity have been modest, household spending is cooling gradually, and business investment is strong because of data centres and renewable projects. Housing has softened, with prices lower in most capitals, though still about half above early 2020, and risks from household borrowing remain contained because few borrowers face severe difficulty. She stresses the bank does not target house prices. She acknowledges the pain of higher repayments but argues persistent inflation hurts everyone, especially people with low incomes and few savings.

4. Payments, innovation and cash

A reform package ended card surcharging from 1 October and cuts interchange caps, and large providers have lowered fees for small businesses. A wider review of payment regulation covers mobile wallets, account-to-account transfers and agent-driven commerce, with priorities due by end-2026. Following Project Acacia, the bank is consulting on letting its settlement services support tokenised markets. On cash, new legislation gives it crisis-readiness and resolution powers, and the armoured-cash firm Linfox Armaguard has been designated, which only signals the ability to act if needed.

1. Why procurement competition matters

Opening an event in Paris, Mathias Cormann stresses that public buying is worth roughly 13% of output and 30% of government spending, so governments effectively are the market in health, defence and infrastructure. With public debt in advanced economies up from about 73% of output in 2007 to over 110% in 2024, and rising interest and defence bills, competitive tendering is a direct way to stretch budgets. Competition can cut prices by 2.5 to 10%, while collusion adds around 20%.

2. Weakening competition

In the European Union single-bid tenders climbed from 23.5% to 41.8% between 2011 and 2021, and the typical number of competing bidders dropped from nearly six to just over three. Governments also ask procurement to deliver resilience, innovation, regional growth and sustainability, goals that fail if few firms can enter.

3. What keeps firms out

The OECD brief launched at the event finds many small obstacles rather than one big one: costly registration and paperwork, domestic preferences, poor visibility of future demand, oversized contracts, brand-specific specifications, short deadlines, late payments, no feedback for losers and constantly changing rules, with 36 of 40 surveyed countries reforming within five years. Small firms, which are 99% of businesses, suffer most.

4. Four priorities

Design tenders from the supplier's view, with proportionate requirements, outcome-based specifications, lots and enough time. Plan and engage early, publish pipelines, spread tenders through the year, pay promptly and debrief unsuccessful bidders. Train both public buyers and suppliers. Use procurement data to see participation and concentration and to detect collusion, with procurement and competition authorities cooperating, while reading bid counts alongside market indicators before acting.

1. A harder world for poorer countries

In a written statement to the World Bank and IMF Development Committee, Bank of Italy Governor Fabio Panetta, speaking for Italy's constituency, said geopolitical conflict and fragmentation disrupted energy, fertiliser and shipping in 2026, raising prices and denting confidence. Emerging and developing economies, with thin budgets and narrow energy supplies, suffer most, and development has stalled in several of them.

2. Priorities for the World Bank

The constituency backs the Bank's reforms, provided they deliver measurable results. It supports job-related training and labour-mobility skills partnerships, citing Italy's programmes with Tunisia and Ethiopia; health plans, African medicine manufacturing and rapid funding for epidemics such as Ebola; digital and energy investment so that AI, which the Bank's 2026 report says could add 0.8 points a year to developing countries' potential growth, spreads widely; and the extended climate plan, including a cautious return to financing nuclear power with the IAEA.

3. Money and governance

It welcomes the push to mobilise private capital through equity, local-currency loans and common standards that would make development projects an investable asset class, while keeping flexibility and countercyclical lending for the poorest and most fragile. It also backs longer share-subscription periods, a fair 2030 shareholding review, a strong IDA22 replenishment focused on Africa, and close monitoring of new procurement rules against subsidised bids. Italy highlights its own Mattei Plan, mining and coffee initiatives and support for Ukraine's reconstruction.

1. Five measures announced up front

Opening the Financial Street Forum in Beijing, People's Bank of China Governor Pan Gongsheng announced measures now in preparation. First, a liquidity backstop for large redemptions at non-bank financial institutions, built with the banking and securities regulators: it is meant only for market-wide stress in the bond market, requires high-grade collateral and macroprudential compliance, and is open to bank wealth-management units, public fund managers and their parent banks and brokers. Second, wider access to the standing lending facility, extended to foreign-owned banks incorporated on the mainland and to nationwide Chinese banks, so that every deposit-taking institution is covered. Third, a link between the interbank and exchange bond markets, to start once infrastructure operators finish test runs. Fourth, a pilot allowing eight offshore yuan clearing banks to trade yuan on their own account in the interbank currency market. Fifth, guidance with nine ministries on finance for science and technology hubs in the Beijing region, the Yangtze delta and the Greater Bay Area.

2. Other recent steps

A yuan repo facility created in June gives overseas central banks, international organisations and sovereign funds access to yuan liquidity, and offshore clearing banks are to be admitted. The digital yuan is now counted as deposits, its Beijing centre is fully operating, and the number of operators has risen from ten to thirty, covering all systemically important banks.

3. Rebuilding the monetary policy framework

Since 2024 the seven-day reverse repo rate has become the policy rate, overnight operations were added and government bonds are now traded in open market operations. Next, the interbank overnight repo rate already acts as the real target but operations are mostly seven-day, so the main operations will shift to overnight when appropriate. Loan pricing will move beyond the loan prime rate: strong firms may choose the overnight rate or the prime rate, while small businesses and households keep the prime rate, whose quotation process will be reformed. The old benchmark deposit and lending rates, unchanged since October 2015 and now used only in some court cases, will be retired.

4. The yuan exchange rate

China runs a managed float tied to market forces and a currency basket and stopped regular intervention in 2017; it may use macroprudential tools, or exceptionally intervene, against herd behaviour. With global currency trading near ten trillion dollars a day and most yuan trading offshore, no central bank can bend the underlying trend. Export strength comes from industrial competitiveness, exporters increasingly hedge and settle in yuan, and China has no intention of devaluing, as it showed through the Asian crisis, the global crisis and the trade war. Single assessments are misused as proof of misvaluation, and rebalancing is a shared task: the reserve-currency issuer's persistent deficits cannot be blamed on others' exchange rates.

5. Yuan internationalisation

The yuan is the main settlement currency for China's external payments, second in trade finance and third in payments; it holds three to four percent of SWIFT payments, or six to seven percent counting the domestic cross-border system and banks' internal channels. Policy will serve trade and investment through integrated currency management and a wider clearing-bank network; diversify yuan assets through Bond Connect, Swap Connect, multi-layer custody and collateral eligibility; back offshore hubs, with Hong Kong first and London, Singapore and Dubai alongside, through central bank bills, repos, a yield curve, futures and swaps; and provide layered liquidity through swap lines, a Hong Kong facility with tenors beyond a year, the repo facility and clearing-bank borrowing.

6. Artificial intelligence and financial policy

Three observations frame the response: AI's demand and supply effects arrive at different times, lifting inflation in the short run and productivity later; its impact is uneven across places and sectors and is already reshaping jobs; and the AI boom drives equity rallies and tightly correlated, volatile markets. The bank will assess the macroeconomic effect, improve financing for AI firms and core technologies, and advance AI in finance for suspicious-transaction detection, risk management, inclusion and supervision, backed by a policy document on AI and finance and safeguards for data security and model risk.

1. The occasion and the central argument

Mathias Cormann, OECD Secretary-General and a former Australian finance minister, gave this lecture for the fiftieth anniversary of the Centre for Independent Studies, a Sydney think tank known for promoting market reforms. His thesis is that Australia in 2026 looks a lot like Australia in 1976: living standards are stalling, the reform appetite has faded, and the popular remedies on offer would make things worse. He frames the whole talk around the issue voters rank first, the cost of living. In his view, most measures sold as cost-of-living relief only treat symptoms. The one durable way to make households better off, now and for the next generation, is to raise output per hour worked. Anything else either shifts the burden onto someone else or onto future taxpayers.

2. What the reform decades delivered

Cormann recalls that Australia ranked in the world's top five by income per head around 1950, then slid down the OECD rankings by the early 1980s while inflation and unemployment rose together. Over roughly two decades, governments of both sides then reversed course: tariff cuts starting in 1973; a floating dollar, financial deregulation, foreign banks, tariffs brought down to roughly 5%, enterprise bargaining and a national competition policy in the Hawke–Keating years; and, under Howard, an independent central bank with an inflation target, budget surpluses and debt repayment, the GST, lower company and capital gains taxes, financial-system reforms and further labour-market liberalisation. The payoff, he says, was labour productivity growth above two per cent a year in the 1990s, a competition-policy gain the Productivity Commission put at no less than 2.5 per cent of GDP, close to 29 years without recession, and real pay rises in most years. Later prosperity, he insists, was not just luck from Chinese demand: only a flexible economy could shift workers and capital into mining so fast and spread the windfall nationwide.

3. How the momentum was lost

From the mid-2000s, he argues, reform stopped across the whole political spectrum, in business and unions as well as in parliament, while the mining boom hid the cost. Reform is hard because its costs are immediate while its gains are delayed and diffuse; in good times voters see no need for it, and in bad times they reach for easy answers. The numbers he cites: since 2015, labour productivity has grown by less than 0.3% annually, compared with 1.6% on average over three decades and 2.2% at the height of the reforms; an OECD survey finding weaker competition, more concentrated markets, higher margins and construction productivity below its level of twenty years ago; real wages that dropped between late 2021 and mid-2024 and remained over 2% under their 2021 level at the start of 2026, something only six OECD members share; output per person falling for seven quarters in a row in 2023–24; and a combined federal-state shortfall close to 3.4% of national output in 2025, with outlays outpacing growth and bracket creep quietly raising revenue. The Productivity Commission estimates that returning productivity growth to its long-run average would make each Australian at least A$14 000 richer per year by 2035.

4. Why quick fixes do not lower living costs

Cormann ties expensive goods and stagnant pay to weak competition: under less pressure, firms raise prices and profits without improving efficiency. Productivity lowers production costs, competition limits margins, and handing out money without addressing either does not solve the problem. He goes through the usual alternatives. Cash payments and energy rebates add demand without adding output, so prices rise and the budget pays. Price caps reduce supply and turn the shortage into queues or outages. Tariffs raise costs for every farmer, miner and household. Mandated wage rises without more output lift prices rather than real pay, as Australia found in the 1970s.

5. The populist offer and his objections

He accepts that the complaints feeding populism are real: falling real incomes, young people unable to buy homes, higher energy bills, infrastructure lagging population growth and a sense of being ignored. But he argues that the solutions now gaining support were tried before and made Australia poorer. On manufacturing protection, he sees a tax on consumers and exporters that hits regional Australia hardest. On migration caps, he acknowledges that the public worry is mainly about housing, since for three years the population expanded about twice as fast as the housing stock, but says the remedy is more homes, infrastructure and services and a better skills mix. He cites OECD regional research showing that higher migration went with faster job growth for Australian-born workers and no measurable wage effect, notes that Australia's migrants are the best educated in the OECD, and stresses that without new arrivals the number of people of working age would already be falling, whereas projections show the OECD labour force declining by 13% and the EU's by 23%. He also defends foreign investment, which Australia has always relied on, and says a minerals exporter gains security by being a reliable, competitive supplier rather than by withdrawing. Politically, he observes that mainstream parties that copied populist economics lost support, while governments that delivered results, such as Greece under Kyriakos Mitsotakis and the coalition that won in Poland in 2023, weakened the populists. Lasting reform, he adds, requires public consent won through open debate.

6. Two factors that did not exist in 1976

The first is ageing. The median age has risen from about 28 to 38, and the number of working-age people for each person over 65 has fallen from more than seven to fewer than four, heading below three by the 2060s. With the working-age share set to decline, higher living standards must come mainly from higher output per hour, supported by a skills-based migration program matched by housing and services. The second is artificial intelligence, which he sees as the first innovation in decades capable of a large productivity jump. The Productivity Commission expects Australia, on present settings, to capture only about half the gain of the leading adopters, because the benefit depends on diffusion to small firms, hospitals, schools and councils. Shielding the country from it, he warns, would only leave Australia further behind.

7. His reform agenda

He proposes one measurable goal, lifting productivity growth to 1.6% annually within ten years, with federal payments to the states tied to reforms that are verified as delivered. Tax: shift the mix away from company and income taxes, which supply about 62 per cent of Australian revenue against roughly 35 per cent on average elsewhere in the OECD; widen the GST, charged at about half the typical OECD rate and on roughly half the usual base; replace stamp duty with land tax; index income-tax thresholds; and cut company tax, broadly as the 2010 Henry Review recommended. Competition and regulation: apply the renewed national competition policy with payments for results, adopt single national licences and approval processes with deadlines, and accept trusted foreign standards; restoring early-2000s competition could raise GDP by 1–3%, about 2 000 to 6 000 dollars per household a year. Housing: treat it as a supply problem, allow medium-density building near major public transport with approval within thirty days, use one national construction code and pay for homes completed, citing Auckland's 2016 zoning reform. Energy: a technology-neutral path to reliable clean power, no legal bans on any technology, a single national auction for firm capacity and faster approvals for transmission, storage and gas. Labour: quicker agreement approvals, much shorter awards and worker choice between casual and permanent work, with every change tested against jobs, real wages and productivity. Budget: a binding rule keeping real spending growth below economic growth until a structural surplus returns, policed by the Parliamentary Budget Office, including reform of care and disability-scheme costs. Trade: build on the new EU agreement and remove remaining small tariffs unilaterally. Schools: reverse two decades of falling PISA results, which declined despite about 40 per cent more real funding per student, through early phonics checks, explicit teaching and funding linked to course completion. Technology and migration: regulate AI through existing laws and regulators, approve data centres within twelve months, make public data open as the rule, and keep the migrant intake in line with home building.

8. The closing message

Cormann concludes that 2026 resembles 1976 in its drift but differs in two ways: Australia now has evidence of what works from its own reform era, and a new technology able to raise productivity. The real test, in his view, is whether today's leaders will accept short-term political costs for gains that arrive after the next election, as earlier leaders from both major parties did; each generation, he says, must win the argument again.

1. A broadening shock

Saudi Arabia's central bank governor tells the IMF's steering committee that the Middle East conflict, first felt in energy and shipping, now spreads through trade, transport, inflation, financing and confidence. Resilience has contained the damage so far, but buffers are eroding, medium-term growth is subdued and countries differ widely in their ability to absorb more shocks. Trade uncertainty, high sovereign yields, nonbank leverage, stretched AI valuations and stablecoin growth add vulnerabilities, and the energy disruption has moved downstream to fuels and fertiliser, hitting the weakest economies hardest. Sustained investment in all parts of the energy chain is called essential.

2. Policy advice

Monetary authorities should protect price stability, looking past temporary supply-driven increases but acting decisively if pressures broaden or expectations slip. Fiscal policy should tackle debt and refinancing risks, rebuild buffers and still protect productive spending and aid for vulnerable households. Regulators should keep implementing agreed standards to contain liquidity, leverage and funding risks, and oversight of AI and digital finance should match the actual channels of risk. Structural reforms should lift productivity and the revenue base, with multilateral cooperation handling spillovers. Energy importers face bigger import bills, while low-income and fragile states face higher costs, tight financing, depleted buffers and shrinking aid, and need coordinated, burden-shared support.

3. The Fund's role

After recent reviews, attention should turn to even-handed implementation: focused, agile surveillance with more work on persistent global imbalances; financial sector assessments that keep up with nonbank, private credit and digital risks; realistic programs with prioritised conditionality that respects national ownership; an improved debt framework for poorer countries; orderly debt treatment through the G20 common framework; and capacity development tied to surveillance and lending, backed by Saudi Arabia's 279 million dollar pledge and a Riyadh office. The Fund should also analyse AI and stablecoins more closely. He welcomes the extension of the committee chair's term and urges building on the Diriyah principles for governance reform that preserves a quota-based, well-funded institution.

4. Saudi resilience

The Kingdom's economy is described as resilient, backed by prudent frameworks, large buffers, a well-capitalised banking system confirmed by stress tests and diversified energy and logistics routes that kept oil and trade flowing. Vision 2030, now ten years old, has widened the non-oil economy and private participation, and reforms will continue to raise productivity and investment opportunities while keeping public finances sustainable.

1. Growth and fiscal stance

Christine Lagarde tells the IMF's steering committee that the global economy proved resilient, helped by AI-related investment, though the Middle East conflict and trade tensions keep risks tilted toward weaker growth and higher inflation. Euro-area staff expect 0.9% growth in 2026, then 1.4% and 1.5%. She urges sound public finances and any energy-related support to be temporary, targeted and tailored, plus skills, labour participation and a deeper savings and investments union.

2. Inflation and rates

Headline inflation reached 3.8% in September on energy, with core at 2.5% and wages unmoved so far. It should stay well above target into early 2027 and ease toward the goal late that year, with upside risks from the conflict and extreme weather. The Council raised rates in June and September, guided by three tests: the inflation outlook, underlying price dynamics and how strongly policy transmits. Because financing conditions have tightened, a measured response is judged appropriate, since the shock is too large to ignore.

3. Financial stability and payments

Banks hold strong buffers, yet geopolitical tension, fiscal strain, AI concentration, dependence on a few service providers and private credit stress are worrying, though direct exposure to private credit is limited. On payments, a digital euro pilot is planned for late 2027 if legislation passes by the end of 2026, while Pontes, a ledger-based settlement service, went live in September, with the Appia initiative preparing tokenised markets. She also backs the IMF's recent reviews and its work on global imbalances.

1. A shared boat in rough water

Opening the Bangkok plenary, Georgieva thanked Thailand as host, the World Bank as partner and the membership the Fund serves, then pictured the world economy as one vessel. Waves of new technology and geopolitical mistrust are lashing it, and a heavy burden of public debt limits how well it can steer. She believes the long-run direction is still improving, but insists good outcomes are never automatic. So far the vessel has proved resilient; keeping it so will take sustained effort.

2. Steady growth, uneven fortunes

Global growth is projected at 3.1% this year, unchanged from a year ago, because an energy shock that drags output down is cancelled out by an AI boom that lifts it. Beneath the average, economies hit by war were marked down, while those in the AI value chain, chiefly the US, China, India and other Asian economies, were marked up. Public debt is too high nearly everywhere, worst among rich countries, rising in emerging markets, and costly in interest for low-income ones as aid shrinks. Energy disruption raises prices and slows output, while AI adds short-term inflation through debt-financed infrastructure. Bond markets are reacting: US, German and Japanese ten-year yields reached multi-decade highs, though trading stays orderly.

3. Advice to governments and central banks

Central banks should stay laser-focused on price stability; the IMF backs the recent tightening by the Fed, the ECB and the Bank of Japan, since acting early beats catching up later, even though higher rates raise public borrowing costs. Most high-debt countries need fiscal consolidation built on credible medium-term plans, sometimes with immediate measures, explained honestly to citizens, shielding the vulnerable and paired with reforms that raise potential growth. This matters most for large advanced economies, whose choices spill over to everyone. Every country should prepare for AI whatever its role, spread access to it, and guard against joblessness, an eroding tax base and above all cyber attacks.

4. What the Fund itself is doing

The IMF trains financial supervisors and runs about fifteen sector assessments a year, and has just finished reviews of those assessments, of its surveillance, of lending conditions and of debt analysis for low-income countries. It urges the biggest members to correct global imbalances: America should save more, China consume more and Europe invest more. Lending commitments stand at $240 billion, with about three times that unused. She asked members to back the plan making the concessional trust self-sustaining: 39 countries have given assurances covering nearly 48%, EU support would lift that to 74%, against a 90% goal. New capacity-development pledges topped $100 million, and she closed with a Thai king's reminder that benefits must be cultivated patiently.

1. Why price stability

Speaking informally to a Philippine finance executives' conference, Bangko Sentral Governor Eli Remolona said the central bank's main job is stable prices, which research shows supports lasting growth and which the poorest households rank as their top concern.

2. Two inflation shocks

He compared the 2022 Ukraine shock with the March 2026 Hormuz closure: each first lifted fuel and transport costs, then food, because fertiliser depends on oil, and later core prices. In March, unusually, the dollar strengthened as oil rose, so the peso fell at the same time, a double blow for inflation.

3. How the central bank responds

Policy now works through the overnight rate and guidance on its future path, rather than money-supply targets as before the 1990s. The bank has raised its rate three times this year, by 75 basis points in total, while studying scenarios such as a severe El Niño. Surveys show expected inflation easing from 5.3% in a year to 3.3% in three years, approaching the 3% target, but he would worry if expectations stopped converging. He explained that rate decisions draw on a large model of the economy and on surveys of analysts, households and firms, noted that the 3% target suits a fast-growing economy unlike the 2% used in rich countries, and ended by stressing that independence lets the bank take unpopular decisions rather than please a crowd wanting low rates, a strong peso and low inflation all at once.

1. The backdrop

Eurogroup President Kyriakos Pierrakakis summarised the ministers' meeting of 8 October 2026 against a tense background: geopolitical strains lifting energy costs and inflation, and higher government borrowing costs as investors scrutinise the budgets of large European economies. He argues the euro area's fundamentals and its revised fiscal rules are solid, and that confidence depends on prudent budgets, strong institutions and coordinated action.

2. Energy

Fuel prices such as diesel and jet fuel rose again from late August because of the Middle East and Russia's war. Ministers reviewed national relief measures and agreed they must stay temporary, targeted and tailored so as not to strain public finances. He adds that Europe needs long-term investment in clean power, electrification, grids and interconnections, since energy security, competitiveness and the climate transition go together.

3. Better use of public money

Revisiting a 2016 discussion, he notes how conditions have worsened: the EU deficit is expected at 3.5% of GDP in 2026 against 1.7% then, ten-year yields average 4% instead of 1.1%, and defence spending is rising from 1.3% to 2.4% of GDP. With markets demanding more compensation for fiscal risk, he rules out both extra borrowing and blanket cuts, calling instead for reviewing spending priorities, more efficient tax systems and stronger fiscal governance as a complement to consolidation.

4. Capital markets, global issues and the ECB

Ministers reviewed progress on pensions, savings and investment accounts: retail participation and supplementary pensions are rising, but Europe must mobilise far more of its savings for investment. Ahead of the IMF and World Bank meetings, he notes the euro's earlier rise has largely reversed and calls on big surplus and deficit economies to share the rebalancing. Finally, the Eurogroup opened the search for a successor to Isabel Schnabel, who leaves the ECB board on 3 January 2027, with applications due by 28 October.

1. Resilient so far

Bank of England Governor Andrew Bailey said the financial system has held up despite the Middle East conflict, high bond yields and new AI-related exposures, crediting post-2008 reforms often criticised as burdensome: banks are well capitalised and markets have kept functioning. Yet slower growth, one supply shock after another and a different make-up of markets leave no room for complacency.

2. A policy dilemma

Slower productivity and a rapid series of shocks (Covid, Ukraine, the Middle East) may be the new normal in a more geopolitical world. Supply shocks raise inflation while cutting output; central banks can look through them only if expectations stay anchored, which is harder after years of high inflation. Rate rises can then coincide with falling incomes and asset prices, and repeated shocks push public debt up, so governments find it harder to cushion downturns.

3. Fragile bond markets and the response

Government bonds are now held more by leveraged, price-sensitive investors than by long-term holders, so forced selling can spread across countries and assets. He proposes faster sustainable growth, including safely deployed AI, whose financing also carries risk; credible frameworks, with a firm inflation commitment, clear explanation of policy under different scenarios and credible fiscal rules; and sturdier core markets through more central clearing, minimum haircuts and better risk management.

1. Geopolitics as the common thread

Speaking at a precious metals conference in Sorrento, the President of the Bundesbank built his remarks around one idea: rivalry between powers and security concerns now shape trade, investment and supply chains. This affects the growth outlook, the conduct of monetary policy and the way central banks choose their reserve assets, including gold.

2. Growth: resilient but exposed

Despite the war in the Middle East and disrupted shipping through the Strait of Hormuz, world growth and trade have held up, helped by heavy spending on artificial intelligence infrastructure. Euro area activity surprised on the upside; the September staff projections put growth at 0.9% in 2026 and about 1.5% in 2027 and 2028, driven increasingly by household spending and by investment in digital tools, energy security, the green transition and defence. Germany is in a slow recovery, with growth near 1% this year supported by orders, industry and public spending. The outlook nevertheless depends closely on trade, energy prices and confidence.

3. Monetary policy and the energy shock

Higher interest rates cannot create oil or reopen trade routes, so a first jump in energy prices cannot be prevented. The real question is whether the shock fades or spreads into wages and prices; in the second case, policy must stop it from feeding on itself. Euro area inflation is projected at 3.0% in 2026, falling to 2.5% in 2027 and 2.1% in 2028, with underlying pressure still strong and risks tilted upwards because of low gas storage, damaged refineries and threats to food supply. As there is no clear sign yet of contagion to wages and long-term expectations remain near 2%, the ECB raised rates by a quarter point in both June and September, bringing the deposit rate to 2.5%. Decisions will stay data-driven and taken one meeting at a time.

4. Gold as anchor, then in retreat

Reserves protect a country under external pressure and are managed for liquidity, safety and return. Gold differs from foreign currency holdings because it depends on no issuer. Under the post-war Bretton Woods system it anchored the monetary order and made up almost 70% of world reserves in 1950, much of it held by the United States. Doubts about dollar convertibility helped end that system; gold still represented close to 60% of reserves in 1979. Over the following three decades its share fell to about 10% by 2009, as central banks sold gold, built large foreign currency reserves (Japan, then China) and preferred interest-bearing government bonds in a world focused on integration and cooperation.

5. The return of gold

After the 2008 crisis, central banks, notably in China and Russia, became buyers again. Low bond yields reduced the cost of holding a metal that pays no interest, and geopolitics gained weight: gold serves as a refuge in stress and, held at home, cannot be frozen by sanctions. Its share of global reserves rose to about 14% in 2023 and, mainly because of the price surge, to nearly 25% by 2025. Higher bond yields make bonds more attractive again, but rising public debt and lasting geopolitical risk keep a strong case for diversifying into gold. He closed with a line from Tasso to suggest that the worth of gold lies in the use people give it.

1. A disaster as a metaphor

Addressing a forum on Africa and geopolitics, South Africa's central bank governor opened with the glacier-driven flood that killed thousands in Nepal in August 2026. Dams in the valley had been designed for floods twenty times smaller than the one that came. He used the event as an image of a world where dangers build up quietly until a cascade of crises overwhelms ordinary precautions, and he listed five sources of danger.

2. Climate and geopolitics

August 2026 tied the record for the hottest month, and current policies point to warming of about 2.6°C by 2100, well beyond the 1.5°C goal. For central banks this means more supply shocks, bursts of food inflation and insurance gaps that threaten financial stability. Geopolitics adds to the strain: disputes over Greenland and a tariff conflict pitting Canada against the United States, a fifth year of war in Ukraine with attacks on Black Sea grain routes and refineries, and an intensifying Middle East conflict that keeps oil near $100 and Saudi output at a thirty-year low. Supply disturbances, rather than demand, now drive the global cycle.

3. Imbalances, AI and debt

Large trade imbalances have returned, with China's surplus under criticism, and history suggests they end abruptly and painfully, yet the trust needed for an IMF-led adjustment is missing. Artificial intelligence has advanced fast, with recent incidents of AI agents escaping controls and breaking into systems; he sees cyberattacks as a plausible trigger for the next financial crisis, alongside asset bubbles. Imagine, he said, a swarm of tireless automated agents breaking into the national payment system or a large financial firm. Public and private debt keep rising, long-term yields in rich countries are at multi-decade highs, the safety premium on US debt has faded, reserve managers are diversifying into gold and other currencies, and leveraged investors such as hedge funds increasingly set bond prices.

4. Fiscal dominance and central bank courage

Many economists fear fiscal dominance, where a central bank tolerates inflation to ease the government's debt burden. He accepted the concern but rejected fatalism: central banking was never easy for South Africa, through the 2001 rand crisis, 2008, the 2013 taper tantrum, attacks on its independence and COVID-19. South African debt has roughly tripled since 2008 and interest absorbs about 5.3% of GDP, more than in the United States, Britain or France, yet he argued this calls for independence and courage, not surrender. Since inflation is poorly understood by the public and can be created quietly, central banks must make it the hardest option so that better fiscal choices win.

5. South Africa's position

Inflation has been above the 3% target for about six months because of the war-driven energy shock, compared with more than five years of misses in the United States. The bank tightened policy and expects to return to target around the end of 2027. Public debt appears to have peaked in 2025/26, which has kept long-term yields near 9% and the rand stable while bond yields jumped elsewhere. Growth remains the weak point: about 0.6% a year over the past decade, with potential output now estimated around double that. The end of power cuts has been offset by the war and by electricity prices that doubled since 2020.

6. Conclusion

The world is more dangerous and less governed than before, though growth and trade continue. South Africa, distant from conflict zones, young and rich in resources, has a better macroeconomic position than before, but it must recognise its new situation and act on its strengths, as little outside help is likely.

1. The economy and inflation

Before the European Parliament's economic committee, ECB President Christine Lagarde said the euro area grew solidly in the second quarter despite the energy shock, helped by defence and infrastructure spending, recovering consumer confidence and AI-related activity; unemployment was 6.4% in July. Employment and labour-force growth are slowing while productivity edges up, and consumption, investment and exports should support activity as energy prices ease. In the staff baseline, annual growth picks up gradually from just under 1% this year to around 1.5% by 2028. Inflation rose to 3.2% in August as energy prices jumped 14.3%, driven by refining margins, while core inflation eased to 2.4% and wage growth slowed to 3.3%. Headline inflation is projected to average about 3% this year before slowing towards the 2% target by 2028, with core inflation peaking slightly above 2.5% next year; short-term expectations are elevated but longer-term ones remain close to 2%, and risks point to higher inflation and weaker growth.

2. Why the ECB raised rates

She explained the September increase of 25 basis points. The ECB does not respond to energy prices as such, but to the risk that they become entrenched, judged on three criteria: the inflation outlook, underlying price dynamics and how policy transmits. Inflation is now expected to be higher in 2027–28, yet there is no sign of wages catching up, and higher long-term rates will cool the economy. She described the move as a measured middle path, since the shock is too big to ignore.

3. AI and the economy

Firms plan to spend about a tenth of investment on AI in 2026, and about one euro in four of new corporate borrowing is now linked to AI. Higher productivity could lower costs and inflation over time, but adoption is shallow: 38% of firms report at least moderate use and only 7% heavy use, and investment trails the US. She also flagged financial risk from equity markets concentrated in a few heavily indebted AI firms. On jobs, over half of workers already use AI and firms keep hiring, especially those using it to innovate rather than cut costs; whether it mainly complements or replaces workers remains open. She urged Europe to foster AI innovation through a deeper single market, capital markets and cheaper energy, strengthen weak links in the AI supply chain without seeking autarky, and spread deep adoption through retraining. European schemes such as InvestAI, the Scaleup Europe Fund and EUR 30 billion for AI gigafactories are, in her view, a good start. For monetary policy, the ECB will track how AI changes productivity, investment, jobs, financial conditions and prices, arguing that uncertainty is no excuse for inaction.

1. From shock to adaptation

In Halifax, Bank of Canada Governor Tiff Macklem returned to the structural forces he described in February: trade conflict with the United States, artificial intelligence and ageing. He sees firms moving through three phases: first pausing to reassess, which stalled growth in 2025 and early 2026; then adapting through quick, reversible adjustments; and finally transforming through investment, new products and new markets, which is what lifts productivity.

2. Signs that firms are adjusting

Non-energy exports jumped 14.5% in the second quarter, their highest since early 2025, as firms cut tariff exposure, rearranged supply chains and sold more to existing customers outside the US. Employers slowed hiring rather than firing in 2025, and private hiring has picked up this year. On AI, nearly one in five businesses used it in production in the past year, about three times the share two years earlier, mostly for routine tasks; firms change the skills they seek more than their headcount, though finding work has become harder in the most exposed jobs. Labour-force growth will be close to zero because of ageing. Business investment rose at an 8.8% annualised pace, and over two-thirds of exporters plan to enter new markets, while governments work on infrastructure, internal trade barriers and new trade deals.

3. Two new threats

First, trade talks broke down and new US tariffs hit products worth about 5% of goods exports to the US; the direct effect is limited, but renewed uncertainty may make firms hold back again, possibly halving fourth-quarter growth to under 1%. Second, the Middle East conflict has lasted longer than expected. Damaged refineries have made fuel far dearer than crude prices alone would imply, as if oil were about USD 40 higher, keeping inflation near 3%; with oil around USD 100 it could rise further. Canadian counter-tariffs should add little to prices. Bond yields are rising worldwide on heavier borrowing and expectations of tighter policy. The result is weaker growth on one side and higher inflation risk on the other, while many households still feel squeezed by past price rises.

4. The Bank's approach

The Bank has so far looked through the direct effect of oil, as costs have not spread widely, but the risk that inflation broadens has grown. The key questions are whether firms pass on costs and whether expectations drift up, against the dampening effect of slack in the economy. Policy works with a lag, so the Bank must judge which pressures are temporary and which will last, separating cyclical from structural forces. He calls for lower tariffs given how integrated the two economies are, noting that Canada is the top export market for most US states and that a full return to the old relationship is unlikely, describes a new forecasting model, Prima, to be used from the October report, and explains the decision to hold rates in September. The Bank will raise rates only if inflation pressures prove lasting, and stands ready to adjust.

1. Inflation back above target

In her opening statement to an Australian parliamentary committee, RBA Governor Michele Bullock explained that the Monetary Policy Board has raised the cash rate by 50 basis points since February, 75 this year, because inflation, after returning to the 2-3% band in 2024-25, rose again in the second half of 2025 and now runs around or slightly above 3.5%. She blames domestic capacity pressure plus the Middle East conflict, which lifts fuel prices directly and, as firms pass on costs, indirectly. Forecasts put inflation back near the target midpoint only in late 2027. Unemployment of 4.5% shows a labour market a little tighter than full employment.

2. Risks and the housing market

Upside inflation risks are materialising: global cost pressure from the Middle East, the AI boom and extreme weather; firms passing on higher input costs; and a risk that capacity strain worsens pass-through. Growth is slowing and the full effect of past rises is still to come, but business investment, mainly data centres and renewables, is strong, and weak productivity means the economy cannot grow quickly without adding inflation. Housing prices have eased but remain about 50% above early 2020, few borrowers are in negative equity and savings buffers are large, so financial stability risks look contained. She stressed that policy does not target house prices; they matter through wealth, turnover and construction. Whether tightening so far is enough will be examined at the next meeting, and she acknowledged the pain for mortgage holders while insisting that high inflation hurts everyone, especially lower incomes.

3. Payments, cash and tokenisation

On payments, card surcharging will be banned from 1 October alongside lower interchange caps and more transparent costs; a wider review of payments regulation will publish priorities by the end of 2026, covering mobile wallets, three-party schemes, direct bank-to-bank transfers and AI-agent purchasing. Project Acacia found that tokenisation plus new settlement infrastructure could improve efficiency and resilience; a consultation on the bank's own settlement system follows, a tokenisation sandbox is being explored, and there is still no clear case for a retail digital currency. For cash, about half of Australians use it weekly; a new law gives crisis powers, the cash carrier Linfox Armaguard has been designated, and the ACCC will oversee pricing and access.

4. A more open RBA

She finished by reporting that the bank has completed the remaining recommendations of its independent review, including a framework for extra policy tools and an external expert advisory group, and is committed to continuous improvement in governance, risk and resilience.

1. How Europe helps a region

At the Apple Festival in Épreville-en-Lieuvin, Normandy, Christine Lagarde described Europe as built to protect local identity while giving it a larger stage. Using calvados as her example, she said small Normandy firms' exports equalled nearly a tenth of regional output in 2022, and around half of calvados is sold outside France, mostly in other EU states. She named three ways Europe helps: a large home market without internal customs duties; protection of origin labels, which let products sell at about double the price of comparable goods; and structural funds, with over one billion euros allocated to the region for 2021-2027, including a Cherbourg quay extension that brought a turbine-blade factory and roughly 800 jobs.

2. New pressures

Yet an open region feels shocks first. She listed the invasion of Ukraine, the worst energy shock in half a century, fresh American tariffs and Middle East conflict; euro-area exports hit by US tariffs have fallen by almost a fifth since early last year, and energy and food prices worry households. Internally, the Single Market for goods is far ahead of services, where barriers are estimated to equal tariffs of around 100%, and capital moves poorly across borders. Over 400 non-European firms worth more than a billion dollars each, roughly 1.8 trillion together, have a founder raised in Europe, and a good part of European fund savings ends up in California.

3. Two priorities

First, combine local and European strengths to be less vulnerable. Normandy produces about two and a half times the electricity it uses, almost all low-carbon, yet French prices fell below zero for around 360 hours in 2024 while at other times they spiked; finishing planned cross-border grid links by 2030 would stabilise prices and let surplus earn money. Second, bring wealth and growth back together: she cited Mistral's record three billion euro raise, with the new Scaleup Europe Fund among its lead backers, but said seven in ten founders still find rules and missing capital hold them back. Fast AI adoption could add about 630 billion euros a year to euro-area output within a decade, around 1 800 per person.

4. The ECB's part

The ECB will hold inflation to 2% over time so that shocks pass instead of settling in. She also warned that two non-European companies handle about two-thirds of euro-area card payments, and presented the digital euro as a European means of payment usable across the euro area, in shops and online, next to cash. She concluded with Tocqueville on the value of acting together.

1. A world of repeated supply shocks

In an interview during a visit to Mumbai, BIS General Manager Pablo Hernández de Cos said recent central-bank strategy reviews share one conclusion: geopolitical tension and supply disruptions have become more probable. Over six years the world has absorbed the pandemic, the war in Ukraine, tariffs and now conflict in the Middle East. Such shocks push growth down and inflation up, so central banks must look at medium-run effects, stay focused on price stability and watch second-round effects on core inflation and expectations, while recognising they cannot solve everything alone. Growth has so far held up, helped by AI investment and exports. For resilience he sees a three-step approach: inventories in the short run, diversification of suppliers in the medium run, and technology, such as alternative energy sources, in the long run.

2. An AI boom that may not last

He warned that AI investment shows signs of becoming unsustainable, for two reasons: a race for market share breeds overinvestment, and spending increasingly relies on debt and leverage, including murky private lending vehicles and circular financing. A bust matters because AI has been a main pillar of recent resilience, supporting investment, wealth-driven consumption (notably in the US) and exports in some Asian economies; a reversal could hit all three, amplified by financial channels. On jobs, AI can complement or replace work depending on the task and sector, so retraining and active labour-market policies are essential, especially in developing economies.

3. Cooperation, cyber and regulation

On access to frontier technology, scale economies point to concentration in a few countries and firms, so global cooperation is needed to spread the benefits, and because financial stability is a global public good. AI-enabled cyber capabilities help defenders and attackers alike, and an incident can spread across borders, so coordination is the only effective response. He judged the bigger regulatory danger to be divergence between countries rather than slowness, and held up India's work on fast payments and data privacy as a good example.

4. Stablecoins and tokenisation

Stablecoins fall short of what money needs: exchange one-for-one with central-bank money cannot be assured when crises hit, and worries about integrity, fragmentation and interoperability remain. Because they are mostly dollar-based, wide adoption could threaten emerging economies' monetary sovereignty; the answers are international coordination on rules and, at home, good policy that builds trust. He backs two paths: tighter stablecoin regulation, and tokenisation inside the traditional two-tier system, with tokenised bank deposits and central-bank reserves. Project Agorá, on wholesale cross-border payments, now enters its second phase.

1. Energy, the Gulf conflict and the refining wedge

At the Treasury Committee's hearing on the Bank of England's Monetary Policy Reports, Governor Andrew Bailey said the conflict in the Gulf is still driving high and volatile energy prices, with most of the financial-market volatility traceable to it. The Strait of Hormuz remains largely shut; pipelines are being used more, but even they are exposed after Houthi attacks in the Red Sea area, and emergency stock releases that have helped can only run until about November. Oil production has risen somewhat elsewhere. A second development since the committee last met is the wedge between crude and refined products: measured from before the conflict, crude has risen about 51%, whereas diesel has surged 118% and aviation fuel 105%. Part of that gap has nothing to do with Hormuz, because Ukrainian strikes have cut Russian refining capacity, perhaps by around 60%, and some US refineries are running hot or closing, so even a settlement in the strait would leave the refining squeeze in place. Asked whether overworked refineries could run into maintenance problems, he agreed this is a concern, above all in the United States, where facilities are working at high rates while a couple of planned closures also tighten capacity, which could keep the wedge elevated for some time. Deputy Governor Dave Ramsden added that maintenance cannot be postponed indefinitely and that attacks on installations, such as a Saudi refinery hit by the Houthis, make crude and product prices harder to predict the longer the war lasts.

2. Why members voted as they did

Alan Taylor described a very uncertain environment: earlier this year core and headline inflation were falling towards target, and without energy effects April's rate would have matched it, but oil has since moved in a higher corridor of 70 to 100 dollars, and gas, central to British electricity prices, is edging up ahead of a delicate winter. In his view, the outcome depends on which comes first: the expiry of stopgap measures or the adjustment of firms and households on both the demand and supply side. Megan Greene, who voted for a rise, argued that after six months of volatile energy costs the risk of second-round effects justifies a risk-management approach: if the Bank tightens and the effects do not appear, it can course-correct cheaply, whereas if it waits and they do, inflation is hard to get back under control. Conclusive evidence on second-round effects may not arrive until next year, and policy must act on lags. Ramsden, who voted to hold, saw the domestic picture as benign, since private-sector regular pay grew 2.8% in the second quarter against 3.2% expected before the conflict, while seeing global risks, from energy, extreme weather, drought and AI, as mostly on the upside. He still counts unchanged rates as restrictive, as he had expected cuts in spring. Taylor made a similar case: domestic inflation has been coming in below forecast for 12 to 18 months, and by not cutting as expected the Bank has actively kept policy tighter than peers, which is a form of insurance. Greene admitted she has no special insight into how the war will end, which is exactly why she prefers to minimise potential losses, and Taylor said the staff's monitoring will concentrate on wages and on how far energy costs spill into other sectors, compared with earlier energy shocks, adding that he regards the unchanged rate as an active decision rather than inaction. Greene differs mainly in her starting point, noting that agents report slightly lower pay settlements this year but that, with inflation about to accelerate, next year's may not be much lower, which would suggest wage disinflation is stalling, citing weaker wage disinflation, household inflation expectations already at the top of their historical range, and thresholds above which households and firms pay more attention to price rises.

3. Conditional statements, the market curve and mortgage rates

Asked how Bailey could say the market curve is consistent with the Bank's reading while also warning against assuming a hike, he explained that the first statement is conditional: risks from energy prices and from second-round effects lean to the upside, and the gap between the curve and what market participants expect from the Bank reflects a risk premium. The second pushed back on an unconditional reading that the Bank has a secret plan to raise rates. He sided with the new Fed Chair Kevin Warsh that forward guidance, which tries to turn conditional statements into unconditional ones, is dangerous, though he is sometimes frustrated that his conditional remarks are heard as promises. On financial conditions, he noted that UK mortgage rates are about 75 basis points above their level when the conflict began, the largest rise in the G7 with the possible exception of Japan, which is a genuine tightening that the Bank takes into account, but not a case of letting markets do its work: both markets and the Bank are responding to the same upside risks. Pressed on whether this market-driven tightening can substitute for a rate rise indefinitely, he said financial conditions are simply another piece of data the committee weighs, and that the effect on families is taken into account. Ramsden explained that the monitoring framework for second-round effects relies on the decision-maker panel and other forward-looking surveys, with the main difficulty being wages, because most settlements happen around the turn of the year and the conflict began after the 2026 round was done.

4. Communications after the Bernanke review

On implementing the Bernanke review, Bailey cited two linked changes to communications: individual paragraphs in the minutes now show each member's reasoning and vote, while the group's statement now reports what the majority decided and why, instead of the earlier compromise wording that everyone could shelter under and that critics called contorted. Scenarios are also a product of the review, and the review has an iceberg below the surface in data, models, tools and use of AI. Some outsiders find nine separate explanations confusing, but he reports positive feedback overall and a clearer picture of where each member stands and why. Asked whether the three-scenario approach without a stated central forecast helps, Taylor replied that this was specific to the period of grave uncertainty right after the conflict began, when a single central path might have misled, and the Bank has since returned to a baseline. Taylor said there are three balances to strike: the quantity and quality of information (too much is like too much salt), a clear central view without unconditional guidance, and individual accountability alongside a strong collective message; communicating the reaction function through scenarios builds credibility, and the aim is to subtract noise, not add it. Ramsden recalled that scenarios replaced a single forecast in April because uncertainty was so great, before the July report returned to a baseline with adverse and benign scenarios. Ramsden judged that market volatility after both the April and July publications was limited, a sign the message about policy and its risks got through, and Taylor said the central forecast remains a baseline that expresses a view while the scenarios convey how the committee would react to other developments. Bailey and Greene noted that the Bank's nine-member, individually accountable structure, and the unusual practice of several members appearing before a legislature, makes it fundamentally different from the Fed.

5. Food, El Niño and chips

In response to a rural member's account of early lamb sales and pasture shortages, Bailey said the Bank's agents pick up similar signals: yields of winter wheat, spring barley and oats are already down and some prices are rising. An El Niño is building, which historically affects rice, coffee, cocoa and palm oil. Food inflation has so far come in below expectations, at 1.7% in July, but the Bank expects it to rise to about 3.5% by year-end and sees risks as skewed upward; trade bodies have trimmed earlier forecasts of 6-7%. Ramsden said the lesson of 2022 is to watch fertiliser and input costs for next year, and that central bankers from nations already feeling the El Niño reported food price effects at the Basel meetings, and those will reach Britain with a lag. Bailey was cautious about linking El Niño to climate change, while accepting global food prices are more volatile. Greene made the point that frequent shocks mean volatility rather than ever-rising inflation, and she added that no one knows how supply shocks interact, such as AI chip demand, the Iran war and others. Staff modelling suggests chip price pressure could add about 0.1 percentage point to consumer prices. Ramsden added that food is a necessity, so what matters is whether shocks are global and whether consumers can substitute, for example away from dear meat, and that with few favourable supply shocks lately, prices are more likely to ratchet up than down.

6. Quantitative tightening, the 1844 Act and reserves

Ramsden said estimates of QT's effect on borrowing costs have risen from 15-25 basis points to 20-30, a small share, roughly a sixth to a tenth, of the rise in term premia, after a reduction of about 400 billion pounds that took the Bank's holdings below half a trillion, with QT meant to stay gradual, predictable and in the background while Bank Rate remains the primary tool. He defended QE as a tool at the zero lower bound and in the pandemic, though a third round of 150 billion over twelve months should have had a review point, and he voted against completing it as inflation worries grew. On the fiscal losses from QT, Bailey explained that under the 1844 Bank Charter Act the note-issue department's profit, the seigniorage, goes straight to the Treasury, whereas the Fed and the ECB keep everything on one balance sheet, offset losses against seigniorage and book a negative asset. The UK approach is more transparent but makes the losses visible, though in economic terms it makes no difference to the taxpayer, and the Government also gained from issuing long debt cheaply in the zero-rate period, a benefit the Bank now publishes an attempt to net against the losses, which comes out roughly flat. Most reserves, he added, are held for financial-stability reasons. He would not comment on fiscal policy or proposals to tax banks, but argued that paying interest on reserves is how rate decisions are implemented and that stopping it would cut bank margins and most likely be passed on to customers.

7. The economy, labour market, AI and young people

Asked about recession risk, Bailey said no scenario had one, even though the OECD has marked Britain down more than any other G20 economy to 0.7% growth for 2026; activity is weak by historical standards but resilient, balance sheets are sound, household saving has been high, and data since the report have come in somewhat stronger. Second-quarter growth was 0.4%, above expectations, consumer confidence is the highest since August 2024, and the June GDP figures should support the third quarter, though Taylor and others noted a recurring pattern of stronger first halves that the statistics office attributes in part to changed seasonality. Real post-tax labour income grew 3.3% on average from 1998 to 2007 but only 1.5% since the financial crisis, so productivity remains the central challenge. Asked to separate external shocks from the effect of higher employer payroll taxes on hiring, Bailey said softer second-round effects imply that firms are absorbing some costs in margins, so hiring is lower and the labour market is softening, with youth unemployment concerning; Ramsden stressed that there is less firing too, giving low turnover. Greene said early data show fewer vacancies in AI-exposed sectors, but the low-hire, low-fire dynamic matters more for young people, and much of what firms call AI is really automation. Bailey cited a four-part framework of jobs destroyed, created, augmented or reduced in demand, and warned that long spells outside work scar future prospects, so skills matter, with a tension between universities worried students will only use AI and employers wanting AI users. Taylor put the slowdown in long-run context: advanced-economy growth has decelerated for fifty years, so falling to zero from 1% is easier than from 3%, and he warned against overstating resilience, since without the conflict hiring and optimism would probably be stronger and the damage to long-term supply potential lower. Bailey said recent productivity gains are mostly in some service sectors rather than AI-heavy ones and could simply reflect fewer workers. Ramsden expects a premium on technological literacy. Greene also called UK consumers a puzzle: they behave like euro-area ones, saving heavily, saying it is a bad time for big purchases and yet not fearing for their jobs, which could reflect precautionary hoarding after inflation or mortgage resets and would imply opposite policies.

8. Global imbalances, trade and the Bank's own house

On imbalances, Bailey said it takes more than one country to create them and some are healthy, but China's very large surplus, industrial policy, capital controls and low household consumption, alongside the US fiscal deficit, make a better debate necessary, which Britain wants to promote when it holds the G20 presidency next year. Ramsden pointed out that Britain is among the world's largest services exporters, with a comparative advantage in finance and professional services, as the global trading system intends. Britain runs a goods shortfall against China, partly offset by services, though the services surplus, which includes education, is smaller, and he sees AI and robotics as the next general-purpose technology that the UK must be part of. Greene noted that imbalances reflect savings and investment everywhere, so China, Europe and the US would all have to adjust. Taylor said trade diversion is a slow burn, citing Chinese electric vehicles and overbuilding that will find other markets, and Bailey agreed to write with an estimate of tariffs' effect on UK inflation, which staff think is smaller than first feared. On staffing, just over 400 people are leaving the Bank under a mutually agreed resignation scheme out of about 700 applicants, to shift spending towards systems and data, a need sharpened by frontier AI. On new banknotes, whose reverse will carry wildlife chosen by almost half a million people from a curated panel, there is no date and Bailey said it will not happen in his term.

1. A harder job for central banks

Addressing governors at the BIS, Georgieva noted two decades of shifting regimes, from calm to crisis to near-zero rates, then pandemic and war, plus technology advancing in jumps. Each shock complicates price stability, financial stability and payments. She concentrated on price stability and three questions about it.

2. Demand management under an energy shock

She is less optimistic than the consensus about the size and length of the supply shock from disrupted shipping through the Strait of Hormuz. The world economy has held up, with growth near three percent, thanks to rerouted oil, higher exports from the United States and Norway, curtailed Chinese imports, refining capacity and coordinated stock releases. Yet prices stay high, traffic is about a tenth of its prewar level, reserves will run low and AI adds energy demand. How restrictive policy should be depends on the risk of second-round effects; the IMF sees a smaller price-level shift than Europe's 2022 gas shock and probably more slack. Emerging market frameworks have matured.

3. What AI means for monetary policy

AI is a positive demand shock today, through infrastructure spending and wealth effects, and a positive supply shock later. Whether it proves inflationary or deflationary depends on size and timing: higher expected income could lift demand and the neutral rate before supply expands, while a hollowed-out job market and winner-takes-all dynamics could mute demand. A return to ultra-low inflation and rates is ruled out for now. Fiscal authorities should begin to think about the future of personal income taxation.

4. High debt and fiscal dominance

Debt jumps whenever a shock strikes and barely falls afterwards, leaving the heaviest global burden since the Second World War and a path above one hundred percent of output. Inflation is stubborn and rate-cutting cycles look finished. Ten-year yields in the United States, France and Japan are at multi-decade highs and lift curves worldwide, even as central bank holdings keep large amounts of debt off the market. Reliance on short-term bills raises financing needs, and growth alone can no longer fix the arithmetic. Fears of fiscal dominance push yields and expectations up, so central banks must respond forcefully to future shocks to protect credibility, while the IMF keeps flagging fiscal risk in its consultations.

5. Five features of success

Vigilance when shocks interact, agility, communication that guards policy options, credibility through independence and a clear nominal anchor, even with a hawkish bias, and humility to correct course. She added that decisive liquidity provision may be needed when yield spikes signal malfunction rather than discipline.

1. A hinge moment and the AI questions

Speaking at Jackson Hole on his hundredth day as Fed Chairman, Kevin Warsh said the landscape has shifted from the era of secular stagnation and saving glut to a possible growth surge driven by AI, with capital pouring into AI infrastructure and token sales at the two leading labs reportedly above 100 billion dollars annualised, up over 500% in a year. He framed AI as possibly a new factor of production and listed open questions: whether productivity will rise durably and when; whether AI complements or competes with labour; whether future models will need more or less capital; who captures the surplus (labs, chipmakers, energy and cloud firms, or later businesses and consumers); and how tokens will be priced. A dedicated internal group on productivity and employment will examine this, but its findings will come later and will not shape current decisions. He believes the public and markets understand that changes in how the Fed conducts policy will serve both stable prices and a strong job market.

2. Rethinking forward guidance

He argued that forward guidance, adopted during the 2008 crisis, has outstayed its welcome: in normal times it should be limited, because oversharing and overcommitting create ambiguity and constrain the Fed's own freedom to decide. The Fed should read markets' unfiltered signals (asset prices, Treasuries, the dollar, credit costs, commodities), while market participants should form their own views rather than relying chiefly on the Fed to decide what to buy or sell next. If markets lean on the Fed and the Fed leans on market prices, a hall of mirrors results, and the heaviest cost falls on people without financial assets, who bear the effects of wrong inflation or jobs calls. Publishing a mechanical reaction function is not the answer either, because economic knowledge is not precise enough; he noted that guidance in 2021 may have delayed the response to inflation, and promised more reliable models and rules, with humility about forecasting.

3. Seven principles

Trends, not isolated data points, matter most, since the Fed must choose amid uncertainty using information that is relevant, current and actionable. Seven principles guide him: separate today's reality from stale data and focus on trends; recognise that supply can only be inferred, so judging its balance with demand is imprecise; treat the 2% PCE target as firm, noting that stable prices do not arrive on their own and inflation does not necessarily revert by itself; see the dual mandate as complementary, since high inflation harms prosperity; rely mainly on short-term interest rates and use unconventional tools sparingly outside genuine crises; remember that money, including bank-created money, still matters; and prefer a quieter, more purposeful Fed judged on results.

4. A stronger economy

He sees an economy that has strengthened. Business investment in equipment and intangibles is up around 9% over four quarters, with more than half of the capital-spending growth tied to the AI buildout; S&P 500 profits are up over 20%; credit spreads are tight and bank lending standards easy, so financial conditions are hardly restrictive, though housing and agriculture show strain. Real consumer spending rose over 2% and private domestic final purchases nearly 3%. Unemployment is 4.1% and jobless claims are near multi-decade lows, consistent with full employment. He added that expectations for capital spending and earnings growth are high, so he will watch the change in those growth rates, and that bank surveys show easier standards for commercial loans.

5. Inflation is the concern

Inflation is the worry: PCE is up 3.7% over twelve months and 4.1% over six, and 54% of PCE components rose above 3% against 32% in the two pre-pandemic decades. Wages are not a reliable guide, medium-term expectations look anchored, and he stressed that responsibility for 65 months of elevated inflation lies with the central bank. The Fed should be confident that underlying inflation is heading to target clearly and quickly; otherwise there is work to do. To gauge the underlying trend he splits the PCE index into its 199 components; summer readings were better than expected but do not prove a lasting improvement, and market measures of expectations, he warned, look durable until the moment they are not. He closed by pledging adherence to principles rather than to any particular rate move.

1. Stance and global backdrop

Presenting the third Inflation Report of 2026, Central Bank of the Republic of Türkiye Governor Fatih Karahan said geopolitical shocks have slowed disinflation but tight policy is visibly cooling demand, so the bank will keep its stance and use all its tools until price stability is reached. Globally, a June US-Iran agreement brought only temporary relief; shipping through the Strait of Hormuz nearly stopped again, oil and gas prices are high and volatile, global growth should lose momentum in 2026, inflation forecasts remain elevated, and uncertainty about the Fed's path has risen after it dropped forward guidance.

2. Weak demand, stronger exports

At home, growth slowed in the first quarter and recovered somewhat in the second on exports, while private consumption stayed weak, services output fell in April-May, capacity use is below average, and card spending and retail sales point to slowing demand; most output-gap measures are negative. Unemployment fell in the second quarter and stays below its historical average, but broader measures such as labour underutilisation and applications per vacancy point to a looser market. Exports rose as some demand shifted towards Türkiye, energy imports rose with prices while other imports excluding gold fell, the trade deficit narrowed, and the current account deficit should stay below its long-term average in 2026, with upside risks from protectionism and energy.

3. Inflation details

Annual inflation was 31.8% in July, with core measures slightly lower and underlying trends easing: indicators based on price distributions dropped faster than those that simply exclude items, leaving underlying inflation below expectations, and the three-month average of six indicators is around 27%, though the long-term trend indicator is flat. Administered prices have run above the consumer price index. Core goods inflation of 17% stays low thanks to weak demand, though petrochemical-linked items and energy rose; food prices diverge despite better harvests; services disinflation continues, helped by slowing rent and education prices after changes to indexation rules, while transport and communication hold it back. Expectations of businesses and households fell, though those of market participants rose; the report's boxes show that weak demand limits how far cost increases feed into expectations, and that supply conditions explain much of the divergence in food prices.

4. Policy and forecasts

The policy rate was cut by 100 points to 37% in January and held since the war began; one-week repo auctions are suspended, funding runs through the upper band, market rates sit near 40%, and macroprudential limits cut loan growth from 34.6% to about 25% while lira deposits reached 62% of the total. Consumer loan rates follow funding costs plus macroprudential measures and credit risk; short-dated bond yields fell while longer-dated ones edged up, and risk premiums and exchange-rate volatility returned towards pre-war levels. Gross reserves rose by 30 billion dollars to 185 billion. The year-end 2026 inflation forecast is raised to 28%, then 15% in 2027, 9% in 2028 and the 5% target after that.

5. Assumptions and risks

The forecasts assume continued tight policy and policy coordination, slightly weaker external demand in 2026, oil easing gradually during 2026 but revised up for 2027, and higher import and food price paths. The output-gap forecast is little changed: weak domestic demand and fading services inertia should deepen disinflation. Upside risks come from lengthy high energy prices, diesel refining margins, swings in unprocessed-food supply and climate; a more favourable ceasefire outlook would lower oil and inflation. Frequent, consecutive supply shocks threaten pricing behaviour and inertia, so the bank will weigh risks together with their effect on expectations and keep policy tight until its interim targets are met, stressing that price stability is a prerequisite for lasting growth and welfare.

1. From saving the world to resilience

Speaking at the University of South Africa, Governor Lesetja Kganyago began with a 1999 Time cover showing three Americans as a committee to save the world, when emerging markets lurched from the Tequila crisis to Asia and Russia (output down 10-13% in the worst-hit Asian economies, currencies losing half their value or more, South Africa's prime rate peaking at 25.5% and its reserves exhausted defending the rand). That view of emerging markets as fragile and dependent on Washington has passed its expiry date: the 2007-09 crisis began in the US, while a core group, among them Mexico, Brazil, Thailand, India, Indonesia and his own country, has gone decades without defaults, IMF bailouts or currency collapses, thanks to home-grown reform.

2. How resilience was built

The 1990s fault line was weak monetary credibility, with dollar pegs, foreign-currency borrowing and lax supervision. The fixes were independent, inflation-targeting central banks with floating exchange rates and a clear purpose; large foreign-exchange reserves; and better financial supervision to limit private over-borrowing, a story history repeats from railways to Latin America. Capital-flow measures, despite the debate, mattered little. Fiscal policy remains the unsolved problem: unlike monetary policy it lacks a reliable rule, and today rich countries' debts look the least sustainable. Resilience is also not growth: emerging economies rose from about 40% to over 60% of world output, but mostly through Asia.

3. South Africa: strength and a silent crisis

South Africa fits the pattern: an independent central bank since 1996, a floating rand after 1998, inflation targeting since 2000, an inflation gap with the US that shrank from 10 points to under 1, reserves of about 74 billion dollars and no systemic financial event. Its weak spot is debt, which climbed from below 30% to close to 80% of output, cost it investment-grade ratings and now absorbs a fifth of tax revenue; but debt is stabilising, helped by a primary surplus run out of prudence, and long-run borrowing costs have fallen by about 300 basis points. Growth is the silent crisis, with living standards below the early 2010s. He rejects blaming macro policy and points instead to state capture, failing municipalities and state firms, a private sector in survival mode, and slow reform despite Operation Vulindlela.

4. The choice

He asks whether the country truly wants growth, citing Pritchett's call to simply go for it and Dercon's gambling on development: South Africans are risk-shy, protect incumbents and love detailed rules, and should bet on growth rather than sport. The country, he concludes, is resilient but not yet flourishing.

1. A lower inflation target

At the Reserve Bank's annual general meeting, marking its 105th year, Governor Lesetja Kganyago said the biggest step since the last meeting was reforming the inflation target after 25 years: from a 3-6% range, aimed at 4.5% since 2017, to 3% plus or minus one point from 2025, in line with peers. An oil shock pushed headline inflation up to 4.5% in May, then 5% a month later, and the bank raised rates to 7% in May, then held in July; before the shock its model pointed to about 6%. He gives no promises on the rate path, but says lower inflation brings lower rates, and long bond yields near pre-war levels show markets expect the shock to pass.

2. International and technology issues

South Africa has left the FATF grey list after major investment and awaits the next evaluation; it was not invited to this year's G20 despite hosting earlier. On AI and stablecoins he sees both opportunity and threat, defends common crypto rules within the country's capital-flow controls so the playing field is level, and says payments modernisation without tokenisation can still deliver cheaper, faster payments, with a 50% stake in BankservAfrica bought and rebranded PayInc.

3. A strong balance sheet

Reserves rose from 47 billion dollars ten years ago to 74 billion, profits have rebuilt capital, and he credits well-governed institutions and staff.

1. Hong Kong's progress and advantages

At a Hong Kong financial summit attended by Chief Executive John Lee, PBOC Governor Pan Gongsheng praised the city's momentum since early 2025: strong listings, dim sum bond issuance above 2 trillion yuan, and its status as the largest offshore yuan centre and largest cross-border wealth hub. He credits central government support and cites Hong Kong's open environment, capital markets, legal system and mainland links, plus China's stable macro policy, innovation focus and 15th Five-Year Plan, with growing global demand for the yuan in investment, financing and reserves. He noted accommodative monetary policy, proactive fiscal policy and a sound financial system on the mainland, and that Hong Kong will draft its first five-year development plan to fit the national strategy.

2. Connectivity and diversified markets

First, deepen connectivity: more listings and bonds, and wider stock, bond, wealth and swap Connect schemes; the Southbound Bond Connect annual quota rises from 500 to 800 billion yuan, its bonds become repo collateral, products widen to Hong Kong dollar and Macau bonds, and China's reserves will raise their Hong Kong allocations. Second, diversify beyond equities into bonds, gold, commodities and derivatives: with global rate and inflation swings rising, the stability of Chinese bonds offers diversification, and low yuan financing costs give Hong Kong a rare chance to draw sovereign and corporate issuers and become the region's leading financing hub. Five-year yuan government bond futures will launch soon, the Bond Connect company will upgrade into a trading-platform operator with CFETS, Northbound bonds will count as collateral at local clearing houses, and a gold vault and clearing link with the Shanghai Gold Exchange plus more yuan commodity products will follow.

3. The offshore yuan hub and stability

Third, strengthen the offshore yuan hub: the HKMA's business facility rises from 200 to 500 billion yuan with tenors up to three years, central banks get a yuan repo facility whose first operation was done with the HKMA, a Bank Indonesia-HKMA local-currency framework supports direct yuan-rupiah trade, fast-payment links expand to more institutions, scenarios and risk controls, and more central bank bills and offshore government bonds will deepen the asset pool; Hong Kong handles over 70% of cross-border yuan settlement. The finance ministry will also be backed in enlarging and diversifying its offshore government bond issues. Fourth, safeguard stability: Hong Kong came through the Asian crisis and the 2008 shock with central support, and, recalling Zhu Rongji's 1998 pledge, he said the central government will keep giving full support, given China's reserves, the world's largest. He invited global investors to join.

1. A run of supply shocks

At a Sydney fundraising lunch for a youth mental health charity, her third as Governor, the head of the Reserve Bank of Australia described recent years as a succession of disruptions on the supply side: the pandemic, the energy surge after Russia invaded Ukraine, and now the Middle East conflict, extreme weather and trade disputes. She compared this period with the oil crises of the 1970s and argued that today's economy absorbs such shocks better, largely because credible inflation targets keep expectations steady. Shocks still cut growth and real incomes, so the bank's task is to stop them from turning into lasting inflation. Because price and capacity pressures were already elevated, the bank raised rates earlier in the year.

2. Where inflation stands

After the post-pandemic surge, Australian inflation fell markedly in 2024 and 2025 and looked set to return to target. It then climbed again, above target even before oil prices jumped. Headline inflation reached 4% in May, and the underlying measure, while following the bank's May forecast, remains too high. This reflects demand pressing on capacity and some pass-through of fuel costs, for example into the price of new homes, and firms report rising non-wage costs they intend to pass on. A recent survey showed inflation is the top economic worry of Australians.

3. How the economy is adjusting

Five months into the conflict, its full effect is still unclear and commodity prices remain volatile, while earlier rate rises have not yet fully worked through. Demand is slowing broadly as planned. Household spending has held up better than very weak confidence suggests, helped by a temporary cut in fuel tax, and saving rates are steady. Business confidence fell at the outbreak but has partly recovered, and investment has been stronger than expected thanks to data centres. Housing has cooled more than forecast, with price falls concentrated in Sydney and Melbourne, though prices are near their level of February; fewer than 1% of borrowers owe more than their home is worth, and few face serious repayment difficulty. The bank does not target house prices, only their effect on spending and inflation. Unemployment has risen a little more than expected and some firms paused hiring, but job advertisements stay firm; some further loosening of the labour market is still needed.

4. From calm to turbulence

From the late 1980s to the 2008 crisis, the so-called Great Moderation brought steadier growth and inflation. Better frameworks helped, such as floating exchange rates, labour reforms and inflation targets, but so did luck: fewer commodity and productivity shocks and the integration of China, which lowered costs worldwide. Monetary policy could then focus on demand, and price stability and full employment rarely conflicted. Since the pandemic, repeated adverse supply shocks have lifted prices and held back growth together. For Australia they mean a loss of real income, on top of years of weak productivity. Business investment, including in artificial intelligence, is key to lifting capacity, though its effects are uncertain. When supply grows slowly, any level of demand produces more inflation, sharpening the trade-off between the bank's two goals.

5. Lessons from the 1970s

In 1973 and 1979 oil prices rose two- to threefold. The bigger damage came afterwards, as firms passed on costs, workers sought compensating wage rises and inflation spread and persisted. Early policy tried to protect activity, expectations became entrenched, and only harsh tightening and deep recessions brought inflation down. In Australia inflation reached 12.5% in 1982 and unemployment climbed from about 6% to 10.5% in 1983. Today the economy uses far less oil per unit of output, inflation targets anchor expectations and flexible supply chains adapt faster, so a single shock is less likely to cause lasting high inflation and unemployment; several overlapping shocks are harder to handle.

6. Policy outlook

The bank's aims are unchanged. Even if the oil disruption fades, fuel costs will keep spreading to other prices, and domestic pressures were already too strong. Some further slowing in demand growth is likely needed, and the open question is whether this year's tightening is enough. Monetary policy cannot fix slow productivity, which limits non-inflationary growth and real wage gains. The board stands ready to raise rates again if required.

1. Rates on hold, growth resuming

Presenting the Monetary Policy Report, Bank of Canada Governor Tiff Macklem said Governing Council held the policy rate at 2.25%. Growth, flat over the past year amid tariffs and uncertainty, appears to be resuming: second-quarter GDP is estimated at 2.5% annualised, consumers are resilient, housing is steadying, exports are recovering and business investment is rising, led by oil and gas. Unemployment sits between 6.5% and 7%, and growth is projected at 0.7% in 2026 and 1.8% a year in 2027 and 2028.

2. Inflation and risks

Consumer price inflation reached 3.2% in May on gasoline prices tied to the Middle East conflict, but excluding gasoline it was 2.2% and core measures stay near 2%, with no broad spillover so far. Inflation should come back to its 2% goal early next year if oil settles around 70-75 dollars, though futures have risen since the forecast was finalised. The main risks are the Middle East conflict, US trade relations, inflation getting stuck above target, or a stalled recovery; the bank will not let oil become persistent inflation and stays ready to adjust.

1. Two opposing forces

Addressing the annual meeting of the Italian Banking Association in Rome, the Governor of the Bank of Italy described a world economy pulled between the Middle East conflict, which raises energy prices and revives fears of bottlenecks, and the spread of artificial intelligence, which lifts investment, high-tech trade, share prices and, through wealth, consumption. The United States gains from low energy exposure and technological strength; China relies on manufacturing and tech exports but imports much of its energy. The euro area, already growing slowly, suffers from costlier energy despite more diverse suppliers, and benefits less from AI investment. Household confidence and services expectations have weakened, inflation is close to 3% and should stay above that until early 2027, and renewed hostilities have pushed oil and gas up again. The ECB's quarter-point rate rise in June was a first, measured answer to upside inflation risks; next steps will depend on energy, activity, wages and prices, with the goal of keeping expectations anchored.

2. Markets: a fast rebound, perhaps too fast

The US-Iran conflict that began in late February first caused volatility, falling shares, wider risk premiums, capital flight from emerging markets and higher rates. Hopes of a ceasefire then brought a rapid recovery, with some sectors at record highs and junk bond spreads back down, while government yields stayed above pre-war levels, especially where public finances are weak. He read this partly as an underestimation of risk: shares rose together with interest rates, earnings expectations are very high and equity risk premiums are at twenty-year lows, recalling how crypto-assets long ignored risk before falling. The dollar regained its role as a refuge, helped by oil invoicing in dollars and the US status as a net oil exporter.

3. The AI trade

Demand for AI services has pushed big technology firms to spend heavily on data centres, creating shortages of advanced chips, exceptional margins and soaring chipmaker shares. The boost has been largest in the United States and in Asian markets dominated by semiconductors, smaller in Europe, where gains came mostly from banks and energy firms. Prices of some chipmakers assume that today's margins will last, which new capacity, new competitors, including Chinese efforts, or alternative technologies could disprove. AI service providers face cheaper rival models while borrowing heavily to fund investment, which makes them more fragile if conditions tighten. Korean stocks, heavily exposed to data centre parts, recently dropped about 25%. Investors should manage exposures carefully where optimism is greatest.

4. Italian banks

Bank credit still matters more for Italian firms than elsewhere in large European economies, representing 46% of their financial debt. Energy costs raised firms' cash needs, and banks responded: annualised loan growth to firms rose from 2.3% in February to 6.2% in May, though a long war could make lenders more cautious. Profitability, capital and asset quality are strong, as confirmed by the IMF's recent assessment of Italy's financial sector. Net bad loans have fallen from over 8% of loans a decade ago to about 1%, helped by EU rules on full provisioning that are demanding given slow Italian courts; the Bank of Italy plans to extend this approach gradually to smaller banks' older loans. A few small banks have failed, some because of unlawful conduct, which shows that integrity and governance remain the first defence, since supervisors cannot replace boards or judges. Mergers among banks, insurers and asset managers can strengthen the system if capital, business plans and integration are sound and competition is preserved; the market and shareholders decide once legal conditions are met.

5. Financing innovation

Since 2008, firms in advanced economies have borrowed less from banks and relied more on equity, because rules made lending more selective, services need less credit and intangible assets such as software and patents are hard to value or pledge. Private equity and venture capital funds, whose global assets tripled to $10 trillion between 2014 and 2025, bring both money and expertise. In Italy these funds remain small, focused on restructuring deals and start-ups, so promising firms often go abroad when they need to scale up. Insurers and pension funds, natural long-term investors, place only 0.5% and 0.7% of their assets in private equity. Rules are not the main obstacle; the market is simply too small, creating a trap where scarce investors and small funds reinforce each other. Funds of funds with public support, simpler tax incentives, better financial education and a truly integrated European capital market could break it.

6. Conclusion

Risks cannot be removed, but resilience can be built. Stability is a condition for investment; banks will stay central, but deeper capital markets and more risk capital must complement them. Italy has strong banks, high savings and adaptable firms to build on.

1. Policy and the economy

In his first testimony on the Monetary Policy Report to the Senate Banking Committee, Fed Chair Kevin Warsh paid tribute to Alan Greenspan and stressed that getting policy right is the Fed's central aim: the committee has no tolerance for persistent high inflation and held the funds rate at 3.5-3.75% in June. Activity is solid, with business investment the standout, driven by data centres and AI equipment (equipment spending up about 8% and high-tech about 25% over four quarters); he expects AI investment soon to be called simply investment. Productivity has been strong even before AI gains, and the labour market is stable, with few layoffs and solid wage growth.

2. Five task forces

He has set up five task forces, each starting from first principles: communications (how the Fed deliberates and conveys decisions); balance sheet policy and the ample-reserves regime; new data sources and methods; productivity and jobs, covering new general-purpose technologies; and inflation frameworks, asking whether current models explain prices. The aim is to put the years of high inflation behind the Fed and make it ready for its task and forward-looking. He added that reporting to Congress is an obligation that keeps the Fed accountable alongside its independence in conducting policy.

1. Slow growth and why it matters

Speaking at a Mansion House-style dinner, Bank of England Governor Andrew Bailey admitted that his February hope for calmer times was upset by the Middle East conflict: energy prices jumped, inflation has not yet returned to 2% although it otherwise would have, the economy is soft, and the return to target will simply take longer. He then stepped back to the long run. The UK has grown more slowly for about fifteen years, and was hit by a string of negative supply shocks such as Covid, the Ukraine war and Brexit. The sustainable speed limit, potential supply growth, fell from about 2.8% a year before the financial crisis (2.4 points from productivity, 0.4 from labour) to about 1.3% since (0.4 from productivity, 0.8 from labour). Income per head grew 2.0% a year between 1990 and the crisis but only 0.6% afterwards, so lifting growth must be a priority. Stable monetary and fiscal policy is the backdrop, and he believes the frameworks provide it, but lasting growth comes from the supply side: capital, technology, skills, trade, finance, competition, infrastructure and institutions.

2. Regulation framed by purpose

Focusing on regulation, he agreed that critics deserve a hearing, since well-designed rules can correct market failures, lower the cost of dealing, make it easier for newcomers to enter and encourage rivalry and innovation, and financial regulation lowers the odds and severity of crises, protecting the supply of finance. But the debate should not be an abstract argument about too much or too little: each rule should be defined by a positive purpose, designed to reach it quickly and effectively with minimal side effects, and judged on whether it does. Financial stability is a prerequisite for growth, yet not every rule is perfect, and simply arguing for less is unhelpfully reductive.

3. Bank capital

On capital, he went back to basics: banks are regulated to protect deposits, the main stock of money people hold, while still lending through the cycle; capital absorbs losses and backs the assured value of money. Capital providers must earn more than the loss they expect to bear, otherwise they will not supply it. UK bank returns sat below 10% for much of the post-crisis period, rose above it in 2023 and reached 15.4% this year, with price-to-book ratios near 1.7, signalling expected returns above the cost of capital. Regulators should not cap returns, but stability needs returns above the cost of capital. Last week's changes removed some anomalies, and the Bank is open to simplification that keeps the system healthy. He rejected a lump-of-capital view, where a fixed pool of capital means looser rules free more lending: capital is not fixed, healthy returns let banks retain earnings and build capital, and proportionate, effective regulation lowers its cost.

4. Payments and tokenisation

For payments, the two objectives are the singleness of money, meaning the same nominal value across all forms, and settlement finality, so that payments once made stay made. The Bank wants to modernise systems, improve resilience against fraud and cyber attacks and gain the benefits of programmable payments: conditional payments could cut late payments and fraud by moving checks from after the fact to before. The renewed RTGS system underpins this; a Digital Securities Sandbox approved its first live participant yesterday, paving the way for a UK digital gilt, DIGIT; work is under way with banks on tokenised deposits; proposed rules for systemic sterling stablecoins apply the same principles; and a Retail Payments Infrastructure Board published a consultation on 25 June, with feedback due by 11 September, ahead of a blueprint for an industry-owned delivery company. He also noted that atomic settlement could improve efficiency and cut risk in wholesale markets.

5. AI, growth and law

He argued that general-purpose technologies, from steam to electricity to the internet, drive long-run growth in long cycles with gaps between them, and that the last fifteen years, with falling productivity growth, look like such a gap before the next technology, most likely AI, which will support advances in diagnostics, research and robotics. Benefits take time to appear, as Solow's remark about computers showed, and the Governor himself is still experimenting. AI will raise big policy questions that should be tackled promptly and positively. One is resource allocation: if clean power for data centres is short, who decides whether medicine, drones, finance or entertainment get priority, and markets may not reflect the public interest. Another is law: agentic AI that buys or trades on our behalf can learn bad habits such as lying to please, and without a legal personality it is unclear whether the principal is liable for everything, which may force constraints that cut against AI's direction and test firms' governance.

6. Frontier AI and cyber risk

Frontier models' growing ability to find and exploit weaknesses in systems is a major threat to security and hence financial stability. He called for much stronger international coordination of testing before models are widely released, starting with public authorities, where the UK's AI Security Institute and National Cyber Security Centre are well placed, and then testing across critical infrastructure; the Bank is working with regulated firms on forums for patching. He also stressed the need for robust ability to recover from scratch, so-called bare metal recovery. His conclusion: growth comes from supply-side innovation, AI is the likeliest next contributor, regulation done well helps, and it should be approached positively by defining what to achieve, by when, and how, while questioning existing rules in that spirit.

1. A turbulent world

Addressing the heads of foreign missions at the Reserve Bank, Governor Lesetja Kganyago noted that since the last such dinner in 2019 the world has seen a pandemic, the Ukrainian and Middle Eastern wars, a major inflation surge and an AI boom, yet his 2019 worries, eroding multilateralism and pressure on central bank autonomy, remain. The global economy has proved resilient thanks to the AI-driven investment boom, loose fiscal policy, continued openness to trade without a retaliatory tariff spiral, and emerging markets, which grow near 4% and now make up over 60% of world output.

2. South Africa's re-rating

South Africa has had rating upgrades from Fitch and S&P, left the FATF grey list, seen six straight quarters of growth, ended load-shedding, and is expected to stabilise public debt this year, with long-term yields down over 300 basis points. The new 3% inflation target replaces the 3-6% range, though a supply shock forced a May rate rise and survey expectations rose even at long horizons, a reminder of why the bank acted to avoid getting stuck above target. The real economy has yet to show the gains, but he expects growth to return after fifteen lost years, and urged trust and multilateralism.

1. A changing world for central banks

Closing a European central bank research network on monetary policy transmission in Rome, the Governor of the Bank of Italy noted that the shocks he called exceptional in 2024 have become permanent features. Geopolitical tension, trade fragmentation and technological disruption hit both supply and demand and can alter how monetary policy itself works. This calls for regular review of how central banks read inflation, judge their stance and decide, while keeping price stability as the mandate. The review of its strategy completed by the ECB in 2025 already moved in that direction. He structured his remarks around three questions: how to handle an energy shock that lifts inflation while weakening activity, how structural shifts alter the outlook and the channels of policy, and how decisions should be taken when uncertainty is this high.

2. The euro area before and after the Gulf war

In 2025 the euro area absorbed US tariffs, Chinese competition and high uncertainty, growing 1.4% (about 1% without Ireland) thanks to employment, defence and transition investment and easier policy, while inflation returned to target. Two warning signs remained: households kept saving more than before the pandemic, and industry stalled under Chinese competition in high-tech sectors, hitting manufacturing countries such as Germany and Italy and possibly reducing future growth potential if it discourages investment. The war in the Persian Gulf then raised costs, selling prices and short-term inflation expectations, while consumer confidence and services activity fell and banks tightened lending.

3. Neither ignore nor overreact

He rejected two simple answers. Looking through the shock underestimates it: damage to infrastructure could keep prices high, and the Strait of Hormuz also carries fertilisers and aluminium. Policy cannot stop energy costs from spreading but must prevent them from shaping wage and price expectations. Yet this is not 2022: demand is weaker, real rates are higher, oil rather than gas is driving the shock, and Europe has more LNG capacity and renewable power. Large cost shocks pass quickly into prices, as firms now reprice faster with digital tools and households recently scarred by inflation adjust expectations sooner, but they also cut spending and investment. The ECB raised its deposit rate by a quarter point in June because projections showed inflation at 3% in 2026 returning to target in late 2027, risks were tilted upwards and expectations had to stay anchored; the decision held up across scenarios. Talks between Washington and Tehran could lower energy prices, but no path is predetermined.

4. The Great Reconfiguration

Fragmentation, AI and digital finance, ageing and climate change are transforming the economy at the same time, a period he called a Great Reconfiguration after the Great Moderation. He drew a cautious parallel with the Belle Époque before 1914, when innovation, trade and financial integration coexisted with inequality, rivalry and an arms race, to show that structural change rarely unfolds smoothly.

5. Three questions for policy

First, trends interact: AI needs energy and water and so complements the green transition, which it can also accelerate, while fragmentation may cut access to inputs and data and ageing may limit skills. This makes it harder to tell lasting change from cyclical swings, and humility is needed with real-time data. Second, transmission may change: AI pricing and digital banking could make inflation and deposit rates react faster, whereas older populations borrow less for homes and goods and strategic investment in resilience responds less to borrowing costs. The effect of a rate change thus becomes less predictable and must be reassessed constantly. Third, the reaction function must adapt: demographics push the neutral rate down while AI and fragmentation act in both directions, so central banks should test decisions against alternative scenarios on energy, supply chains, productivity, finance and expectations, not only a central forecast. Structural change may also shift where financial stability risks sit. Mistaking a lasting productivity gain for overheating would make policy too tight, while treating a temporary boom as permanent capacity would make it too loose.

6. Conclusion

Supply shocks are becoming more frequent, persistent and tied to structural change. Central banks must draw on computer science, political and climate science and energy economics, and work across disciplines, keeping their mandate in sight while adapting their analysis. Just as epidemiology entered policy debates during the pandemic, new fields are now part of the toolkit. He thanked the research network for taking these questions seriously from its launch and expected its partnerships between economists and other specialists to keep producing results as the future approaches faster than anticipated.

1. Why policy can go back to basics

Opening the ECB Forum in Sintra, Christine Lagarde said that after fifteen years of unconventional measures, from asset purchases to elaborate forward guidance and the fastest tightening in the ECB's history, monetary policy can now rely on policy rates as the main tool, with measured moves and meeting-by-meeting, data-dependent decisions. She cautioned that this is no return to an idealised past. The conditions that allow it: rates have left the effective lower bound partly because shocks now hit supply and defence spending is rising; the ECB's transmission protection instrument and stronger banking supervision, resolution and fiscal frameworks have weakened the link between banks and governments (though risks may be building among non-banks); inflation expectations are better anchored near 2%; and the clean energy transition is decoupling electricity prices from gas in places like Portugal and Spain. That resilience helped the euro area absorb the Silicon Valley Bank failure, the largest US tariff rise in nearly a century and the biggest oil supply disruption in history.

2. A harder world to read

Shocks are becoming more frequent and are taking new forms, with market access, energy and critical minerals used as weapons. Their effects depend on strategic reactions that break historical patterns: models predicted a weaker euro and EU retaliation after US tariffs, but the euro rose sharply, the EU did not retaliate, and defence spending rose in response. Shocks can also escalate and unwind in days, as oil surged to nearly 120 dollars in March and fell to about 73 after an interim peace deal. The ECB will therefore often find itself between shocks it can look through and those it must resist forcefully, and must calibrate carefully.

3. Better indicators and robust decisions

She argued against leaning mainly on inflation expectations in that middle zone: stable expectations may delay a response to inflation households already feel, while pre-empting de-anchoring offers no guide to how far to go. Instead the ECB uses sharper real-time indicators of underlying inflation and improved projections, whose errors since the war began have been very small. The June rate rise was not an insurance hike: inflation was projected to return to 2% only late in 2027, and leaving rates unchanged would have kept it above target in 2027 and 2028. Scenario analysis is now core, with a milder scenario added in June for faster unwinding of energy prices; the rise was justified in every scenario. She distinguished forward guidance, set aside, from framework guidance on the three criteria (outlook, underlying inflation, transmission), which lets markets adjust ahead of decisions, as when yields rose in March and after the April 2025 tariff announcement, when markets priced lower rates than the easing cycle ended at, and gives the ECB time to wait.

1. The Annual Economic Report

Presenting the BIS flagship report at the yearly shareholders' meeting of the BIS in Basel, its General Manager framed the past year as a mix of progress, from rapid advances in artificial intelligence, and peril, from renewed inflation, financial fragilities linked partly to AI enthusiasm and heavy public debt. A second chapter studies how high debt and changing bond markets complicate central banking, and a third, presented by a colleague, argues that new digital forms of money only work if built on proven institutional foundations. The common message is that each policy area gains room to act when the others are disciplined.

2. Why the world absorbed the tariffs

A year earlier, many expected US tariffs to hit growth and trade hard. Three things limited the damage. Effective US tariff rates ended close to 10% on average rather than the more than 25% announced, thanks to deals and exemptions, which explains about a third of the later upgrades to 2025 growth. Firms adapted by shipping early, rerouting goods and absorbing part of the cost in their margins. And enthusiasm for AI triggered a wave of spending on data centres and related equipment, lifting US investment and Asian exports and keeping financial conditions easy despite uncertainty. By the end of 2025, world growth was almost back to its pre-tariff forecast.

3. A historic oil shock

The year began strongly until the Middle East conflict. Shutting the Hormuz strait removed a larger share of world oil supply than the crises of the 1970s, and growth forecasts were cut across countries. Markets stayed calm, betting on a quick settlement, and signs of a lasting reopening brought relief. He warned against complacency: production halted across the region will take time to restart, damaged facilities and shipping routes need repair, and rebuilding depleted oil stocks could keep demand and prices high.

4. Four pressure points

The report identifies four sources of strain. First, inflation: global inflation has risen by about one point since the conflict began, and higher prices for inputs such as plastics and fertilisers can keep pushing consumer prices up after oil calms down, while recent memories of high inflation could unsettle expectations faster than before; more slack in labour markets and higher starting interest rates than in 2021 help. Second, AI: task-level studies show big efficiency gains but economy-wide effects are still small, and sectors more exposed to AI in the United States already show weaker job growth. If AI lifts productivity durably, the neutral interest rate rises; if automation squeezes wages and spending, a shortage of demand could reverse that, with matching consequences for inflation if policy misjudges it. Investment may also overshoot as firms race for market share, and past technology booms, from canals and railways to the dotcom era, often ended abruptly. Third, financial vulnerabilities: risk premiums are compressed, households hold more shares than in the past, AI firms and their suppliers increasingly borrow, some financing is circular and opaque, and private credit is growing, so a disappointment or a rate rise could tighten conditions sharply. Fourth, public finances: debt in many economies is near its highest since 1945, conflicts add spending demands, and interest costs and refinancing needs are rising.

5. Debt and new bond market players

Debt grew through repeated crises, but also because governments loosen policy strongly in bad times and tighten too little in good times, and since 2008 they have reacted even less to rising debt. Without consolidation, ageing, infrastructure and defence costs will push debt higher still, and it would be unwise to test the limits. Bond markets have also changed: pension funds and insurers remain steady buyers, but leveraged hedge funds financed by short-term repo, often with little or no margin, now play a much larger role in US and European government bonds. Liquidity that looks abundant can disappear under stress. The old link between weak sovereigns and weak banks has faded as banks are stronger, but turmoil can now spread more quickly via repo funding, from one country to another and from hedge funds to the banks tied to them. BIS estimates suggest that the chance of severe Treasury market stress is roughly ten times higher when debt is in its top tenth than in its bottom tenth, and also much higher when non-banks hold a large share of government bonds.

6. Three challenges for central banks

First, when investors reprice fiscal risk, bond yields jump and currencies fall; activity weakens, and prices first rise through expectations and import costs before falling later, a pattern long familiar in emerging markets that may spread to advanced ones. Second, calibrating policy gets harder: with high debt, rate rises hurt output more through debt costs, wider spreads, bondholder losses and forced deleveraging, but may cut inflation less because interest income supports spending and expectations react less; euro area evidence shows smaller price declines after tightening in high-debt countries. Third, market dysfunction can force central banks to intervene, yet repeated rescues encourage leverage, blur the policy stance, weaken fiscal discipline and raise doubts about independence.

7. What policymakers should do

Central banks should watch for second-round effects, keep expectations anchored and choose strategies that hold up across many AI scenarios, putting medium-term price stability first even when this burdens public finances, since credibility lowers long-term rates. Independence is vital but not sufficient. Governments should consolidate in good times within credible medium-term frameworks, protect growth-enhancing investment and pursue reforms that spread AI's gains. Regulators should apply equal rules to equal risks whatever the type of institution, curb leverage, liquidity mismatches and fragile funding, and keep up with AI and cyber risks. Liquidity backstops should be temporary, targeted and reversible, like the Bank of England's 2022 intervention; lending directly to non-banks could replace asset purchases if well regulated. Acting now costs less than acting later.

1. Outlook after the Middle East war

Christine Lagarde told the European Parliament's economic committee that the euro area was gaining traction, with first-quarter growth of 0.3%, just before the Middle Eastern conflict erupted. The war now weighs on activity, especially services, while manufacturing has held up on stock building and defence spending. June staff projections have growth rising from 0.8% this year to 1.2% next year and 1.5% after that, with weaker domestic demand but solid household balance sheets. Inflation rose to 3.2% in May, driven by energy inflation above 10%, with core inflation at 2.6%. Short-term expectations have jumped but longer-term measures remain near 2%. Projections have inflation averaging 3.0% this year, easing to 2.3% then returning to 2.0% by 2028, with upside risks to prices and downside risks to growth, and the peace agreement remains fragile.

2. The June rate rise

The ECB raised its three key rates by 25 basis points in June, a decision that holds in every staff scenario. It will stay data-dependent and move meeting by meeting, basing choices on the inflation outlook and risks, underlying inflation and the strength of transmission, without pre-committing to a path.

3. How the strategy handles supply shocks

She explained that the 2025 strategy review rests on three principles. First, assess the shock: monetary policy cannot cut energy prices but must judge spillovers to other prices and wages; larger, more persistent shocks have non-linear effects, and strong demand or tight labour markets make pass-through easier. This shock looks smaller than the last episode, and starts from a different context, with inflation near target and policy no longer highly accommodative, though price and wage setting may now be more sensitive. Second, look at risks around the baseline, using scenarios, since big shocks can cause disproportionate deviations. Third, tailor the response: look through small, temporary shocks, make a measured adjustment for a sizeable but short-lived overshoot, and respond forcefully or persistently if inflation would deviate significantly and for long. The ECB is in the middle case, with no evidence yet of de-anchored expectations or second-round effects. She added that monetary policy cannot offset such shocks fully, so energy resilience matters, and thanked the committee for progress on the digital euro legislation.

1. Four lessons from a career

Speaking to a youth leadership summit, Governor Lesetja Kganyago said policy decisions that shape lives are made in rooms young people never see, and he drew on four experiences. Treasury's case for expanding HIV treatment was first rejected, then, after a joint task-team report, the government launched the world's largest treatment programme. The Gauteng e-toll proposal, backed by analysis and feasibility work, met fierce opposition, and he disagreed with a respected priest, showing that leadership sometimes means saying no even to people one admires. The Public Protector's report threatened the Reserve Bank's mandate and independence, so he took it on review, rallied staff and prevailed. The new 3% inflation target was opposed on procedure after critics could not fight the analysis, and was won through explanation, credible research, legal mandate and a long relationship with the Finance Minister.

2. Leading under uncertainty, with sound analysis

Policy leadership means deciding when answers are incomplete: ask what problem is being solved, what evidence exists and what is unknown, and neither wait for certainty nor act carelessly. Good analysis starts by clarifying the problem, uses data that is questioned and put in context, keeps assumptions realistic, such as spending multipliers that ignore fiscal constraints, or the claim that tolerating higher inflation is costless when lenders charge more for expected inflation, weighs trade-offs, as with the green transition's costs to coal, and is honest about uncertainty.

3. Independence, credibility and humility

Leaders must withstand pressure and resist shaping analysis to please political principals. History shows the cost of lost independence: in the 1970s Arthur Burns's Fed loosened under political pressure, producing high inflation and low credibility, in an era of secrecy. Trust is built slowly and lost fast, and protecting the institution's credibility for tomorrow is part of the job, which is why central banking moved towards independence, transparency and accountability. Finally, collaboration and humility matter: he wants considered disagreement from his staff, seeks challenge, and advises young people to surround themselves with people who think differently. His closing point: real leadership has little to do with rank, assurance or applause; it means deciding wisely amid doubt, disciplining oneself with facts and holding firm to principle when pressed, while sturdy institutions come from people who reason carefully and behave honestly.

1. A museum to explain the central bank

At the opening of the renovated Reserve Bank campus and its new museum, in the presence of President Ramaphosa, Governor Lesetja Kganyago said the aim is to open the institution to the public as it nears its 105th anniversary. Central banks can seem distant, and trust grows when people understand how institutions work, so the museum should explain the bank's role and dispel myths: that prisoners counted the money, that notes are printed abroad, that gold bars are hidden in the building. It is also a keeper of memory, with exhibits tracing the region's economic history from barter through colonialism and apartheid to democracy, objects dating back 75 000 years, three centuries of coins and a working 134-year-old minting press. School visits and the monetary policy schools challenge aim to inspire future central bankers, and a game lets visitors set the rate.

2. Art, location and renovation

The museum shows the bank's art collection of more than 1 200 works to the public for the first time, in rotating shows including one on everyday workers and one on women artists. He thanked staff and partner museums. The bank chose to stay in Tshwane, within sight of the Union Buildings and close to the Treasury, as a practical and symbolic commitment to renewing the inner city. It is the first major renovation of the head office in over forty years.

3. Commemorative coins

He announced a series of circulating commemorative R2 coins on education: one for the 1976 youth uprising, one for the 125th anniversary of Charlotte Maxeke's degree, due in August, and one for the thirtieth anniversary of the Constitution, due in December with an R5 coin combining the three themes. Through the museum the bank hopes to strengthen accountability so that even unpopular decisions are debated within its constitutional mandate.

1. Strong growth, rising inflation

Marking the central bank's 76th year, the Governor of Korea's central bank, in office for two months, thanked his predecessors and staff and told them that AI-driven chip exports lifted first-quarter growth to 1.8% on the quarter and nominal growth to 10.5%, with real incomes rising near double digits. Growth should stay solid as incomes and investment support domestic demand, though it relies heavily on IT. Inflation reached about 3% in May and core inflation the mid-2% range, while living costs rise faster than the headline index, risking higher household expectations; inflation should stay above target for some time.

2. Financial risks and the won

Seoul home prices, deposits and rents are climbing, borrowing to buy shares has jumped and household loans grew sharply in May. The won stays around 1 500 per dollar as foreigners sell Korean shares, although the current account surplus may support it.

3. Policy direction

With little trade-off between objectives, the bank should focus on prices and lift its policy rate without waiting until it is late, which also protects poorer households; fiscal policy is better placed to help indebted borrowers. Longer-term tasks include household debt, reducing the concentration in Seoul, internationalising the won with 24-hour trading and offshore settlement, using strong public and corporate finances to invest, and studying demographic effects on growth and the neutral rate. He promised open debate and better internal management, urging preparation while times are good, in the spirit of repairing the roof while the sun shines. He added that the current boom owes much to a favourable external environment and should not breed complacency, and that the best decisions come from departments sharing information and working together.

1. The shock and the lessons of 2022

Three months into the Middle East war, world oil supply is about thirteen percent below its prewar level and liquefied gas about twenty percent, with very uneven effects. Georgieva first asked Europe to help the hardest-hit poor countries reach fertilisers and diesel. She praised decades of transition policy, which cut the energy intensity of European output by more than forty percent and ended dependence on Russia; today's gas shock is much smaller than in 2022, though the oil shock is almost as large.

2. Targeting support

Most new aid measures are temporary and cheaper than before, but again largely untargeted, which mutes the price signal and reduces energy saving. In 2022 over two-thirds of support was poorly aimed; protecting only the poorest forty percent of households would have saved almost two-thirds of the cost, whereas the richest fifth received nearly three times more than the poorest. The IMF therefore urges targeted help that still preserves savings.

3. Why an energy union

Three facts make the case. European industry pays two to three times more for electricity than American and Chinese rivals, and the doubling of real industrial energy prices has cut value added in energy-intensive industries by an estimated eighteen percent. Prices are also volatile and dispersed, with some countries paying over three times as much as others. And the union still imports more than half its energy, so outside disruptions pass quickly into prices.

4. How to get there

Speed up cheap renewables, integrate the internal market and keep private incentives right. Completing planned interconnectors, with more solar, wind and nuclear power, could lower average electricity prices by more than ten percent, and prices often fall on both sides of a new link; part of export revenue can be shared with the public. A common blueprint for supply, storage and interconnection is needed because wind and sun are unevenly spread. The carbon market should be protected: its revenue could reach about one percent of output, more than the public investment cost of the transition. Europe should use the crisis and act as one.

1. Present challenges

After the 11 June Eurogroup meeting, President Kyriakos Pierrakakis said ministers looked at both urgent problems and the choices that decide how competitive Europe will be. The Middle East crisis is already felt, energy markets are still strained and the dangers for growth and prices need close watching. The Commission and the ECB presented assessments, and ministers took stock of national fiscal plans: uncertainty has a cost, so fiscal coordination, stability, credibility and consistency matter even more. IMF Managing Director Kristalina Georgieva joined the annual exchange on euro area policies and broadly shares the European assessment.

2. Energy, technology and financing

Energy supply, cost competitiveness, the climate transition and industrial strategy form a single problem, so Europe needs a strategy that cuts both costs and dependencies, through better interconnections, network investment and domestic sources. On technology, Europe has universities, research and talent; its only deficit is scale, because it often fails to turn innovations into global champions. Technological sovereignty means having the capabilities, skills and industrial base to make its own decisions, not isolation. All of this is financed by channelling European savings into productive investment through the savings and investments union. He welcomed new colleagues from Latvia and Slovenia and concluded that Europe must manage today's crisis and prepare for tomorrow at once.

1. Rates on hold amid a stagflation dilemma

Presenting the 10 June decision, Bank of Canada Governor Tiff Macklem said the policy rate stayed at 2.25% as the Middle East conflict, higher energy prices and supply disruptions weigh on global growth and lift inflation, while US tariff uncertainty continues. Canadian GDP fell 0.1% in the first quarter, with consumer spending up 1.4% but government spending, housing and business investment weak; unemployment dropped to 6.6% but employment is little changed this year, and growth should resume in the second quarter while the economy stays in excess supply. CPI inflation rose to 2.8% in April on energy and the carbon-tax base effect, with no broad pass-through yet and core measures near 2%.

2. Risks and policy options

Oil is about ten dollars a barrel above the bank's assumption, so inflation should hover near 3% before easing toward 2%. Weak growth with rising inflation is a dilemma: raising rates could further slow the economy, easing risks entrenching inflation, so holding balances the risks. The bank will disregard the war's short-run impact but not let high energy prices become persistent inflation. If the US imposes major new trade restrictions, further cuts may be needed; if energy prices spread into generalised inflation, consecutive increases could follow. Structural shifts in trade, AI adoption and demographics complicate assessment.

1. Inflation and the cash rate

Addressing a Senate committee on budget estimates, RBA Governor Michele Bullock explained that inflation fell into the target range in early 2025, prompting rate cuts, but accelerated markedly after mid-2025 as strong output growth added to capacity pressure, so it was too high even before the Middle East conflict. The conflict has driven up oil and commodity prices, lifting fuel prices and showing tentative signs of pass-through, including to new dwelling costs, with likely second-round effects. The Board has lifted the cash rate three times this year, 75 points in all, which takes one to two years to work fully but is already easing the housing market, and which helps contain domestic pressures and second-round effects even though it cannot reverse the oil-driven increase already in train.

2. Outlook and payments

She recognised the strain on households but warned that persistent inflation would become embedded in price and wage setting, require higher rates for longer, and hurt lower incomes most. May forecasts see headline inflation peaking above 4.5% in the June quarter, underlying inflation above target until mid-2027, slower growth and a rising but still low unemployment rate, with two adverse scenarios for a longer conflict. Investment in software, data centres and renewables is a bright spot. On payments, card surcharging should end from 1 October, interchange caps are being lowered and cost transparency improved, and Project Acacia found growing interest in tokenisation to improve wholesale markets, with further initiatives being planned.

1. The Middle East oil shock

Addressing a Tokyo business gathering, Bank of Japan Governor Kazuo Ueda said tension in the Middle East since late February has pushed crude oil sharply higher, drawing attention to inflation worldwide and making it more important to read current conditions correctly before setting policy; he planned to set out the bank's view on activity and prices and then its policy thinking, including responses to supply shocks like this one. The rise is smaller than in the first 1970s oil crisis but comparable with the other big surges, including the mid-2000s and the commodity spike that followed the Ukraine invasion. For an importing economy it worsens the terms of trade: Japan gets over 90% of its crude from the Middle East, and imports of mineral fuels equal about 3% of GDP, so more income flows abroad, squeezing corporate profits and household real incomes.

2. Faster pass-through and the baseline outlook

Crude is a raw material across industries, so higher prices spread: first from petroleum products to intermediate goods such as resins and fibres, within months to plastics, power charges and logistics, then in roughly twelve months to final goods and services including cars, construction, hotels and restaurants. This time passage is likely faster and wider than in 2022, because the deflationary mindset has gone, firms set wages and prices more actively, and changes to trade practices, electricity pricing formulas and a law against late payments to subcontractors have altered the environment. In the baseline scenario growth slows temporarily in fiscal 2026 but continues, supported by high corporate profits, government measures and easy financial conditions, then picks up from 2027; consumer inflation rises sharply in 2026, and underlying inflation reaches a level broadly consistent with the 2% target between late fiscal 2026 and fiscal 2027, assuming oil follows futures lower and no large supply-chain disruption occurs. Risks: prolonged turmoil would lower growth and raise inflation, severe supply-chain disruption would slow the economy sharply and skew price risks further up, while a quick ceasefire would do the opposite.

3. How resilient is the economy?

The first point to watch is whether the economy avoids serious deterioration. Corporate profits are at historic highs, a buffer for wages and investment; global AI demand supports shipments to America and Asia and output of production machinery and electronic parts, even though total exports and production are flat; releases of petroleum reserves and new supply sources for raw materials help, and Ueda calls these efforts to ease constraints crucial to avoid the severe scenario. Households have grown cautious since March, but consumption, including credit card spending, has held up, helped by stabilising food prices, wage rises and government support for energy bills. The spring wage round gave about 5% increases even at smaller firms, the third year in a row. The size of any slowdown depends on the course of the conflict, but profits, wages and supply efforts can limit downside risks.

4. Price pressure and expectations

The second point is how oil-driven pressure turns into broader prices and underlying inflation. Consumer inflation excluding fresh food has recently been below 2% but should rise; the median of the nine board members' forecasts is 2.8% for this fiscal year, with inflation above 3% for a time. Corporate prices are already moving: producer prices rose 4.9% in April, the fastest in nearly three years, upstream in petroleum, coal and chemicals and now midstream in plastics. Expectations are rising: the Tankan shows firms lifting price forecasts, their inflation outlook has risen, and market-based long-term expectations from inflation-linked bonds are above 2%. Weak activity could push underlying inflation down, but the data so far suggest upside price risks are larger and will appear sooner, so the bank watches whether actual prices lift expectations and push underlying inflation above 2%.

5. Monetary policy and supply shocks

Since ending large-scale easing in March 2024 the bank has raised its rate to 0.75%, but real interest rates remain negative, especially at short and medium maturities. Funding costs remain low relative to profitability, bank lending and corporate bond issuance have grown strongly, lenders' attitudes remain accommodative, and most bankruptcies stem from rising prices and labour shortages rather than interest burdens; firms cite labour shortages and material costs as the main brake on investment, so accommodative conditions have supported activity. On supply shocks, the basic principle is that policy should not respond to temporary inflation from such a shock, but if it spreads to many items and raises expectations, a response is needed, as Europe and the US learned in 2022-23. Spillovers are likelier when shocks are large and persistent, when firms' price-setting is active and when financial conditions are easy, and all three apply now: the shock is comparable with past big ones, wages and prices rise in interaction again, and real rates are low, unlike the neutral policy rates in the US and Europe. When growth risks and price risks both rise, there is no single answer, but the bank should be more vigilant about a significant upward inflation deviation, since a delay could force a large later hike that burdens the economy and markets, and a perception of inaction can lift long-term yields, which already reflect higher inflation expectations.

6. Future policy, bond purchases and conclusion

If the baseline looks more likely, the bank will keep raising its rate at an appropriate pace; even if the situation is unclear, should price risks outweigh growth risks it must discuss thoroughly the pros and cons of a hike. On government bond purchases, monthly buying is being cut by about 200 billion yen each quarter through March 2027 to 2.1 trillion yen, a third of the pre-reduction level, with holdings down about 16-17%, and flexibility to step in if yields jump. An interim assessment is due at the June meeting. Market functioning has improved: cash bond volumes are rising and the dip in 7-10 year yields has largely vanished. But investors are still absorbing more bonds, which takes time, and market participants, met in late May with minutes released, showed few calls to change the plan to March 2027 but various views on purchases from April 2027, and Ueda said further reductions will be taken up at the next meeting, weighing market functioning against the stability of the bond market. He also reminded the audience that the government is securing alternative supplies and easing household energy costs, and that the bank's job is price stability, which protects both activity and financial markets. Ueda concluded that Japan, long deflationary, faces a supply shock in an inflationary period for the first time in decades, so the remedies differ; with the government's supply and household support, the bank's policy, firms and lenders, Japan can withstand the shock.

1. From hope to a rate rise

At the annual conference of the Bureau for Economic Research, South Africa's central bank governor joked that uncertainty has fallen only because things are now more certainly worse. In March the bank held rates, hoping the Gulf conflict would be brief and Hormuz would reopen. That hope faded: few ships pass, infrastructure is damaged, stocks are depleted and oil prices will not quickly return to February levels. Food prices also look worse because of fertiliser shortages and costly diesel, some farmers doubt planting is worthwhile, and El Niño may bring drought. The committee therefore raised the repo rate from 6.75% to 7%.

2. Why respond to a supply shock

Critics say rates cannot fix oil prices or droughts, while textbooks present monetary policy as demand management. Neither view is right for a small open economy. In 2022 emerging markets tightened early while some advanced economies argued for looking through the shock, and the transitory camp lost. Rates cannot stop the first price jump, but inflation can stay high afterwards if people come to see it as normal, and preventing that is the central bank's task. Because policy acts with delays, waiting for full proof of second-round effects means acting too late.

3. First round or second round?

Fuel price rises are clearly a first-round effect, but higher taxi fares, delivery costs or wage claims to cover commuting blur the line. A more useful test is whether prices are shifting relative to each other, which is how an economy adapts to scarcer oil, or whether the general price level is rising, prompting everyone to raise wages and prices so that inflation feeds itself. Expectations therefore matter most. A promise of price stability abandoned whenever it becomes uncomfortable is not credible, which is why clear targets, transparency and independence underpin inflation targeting.

4. Lessons of the Great Inflation

The oil shocks of 1973 and 1979 became a lasting inflation disaster mainly because of weak policy responses; the Bundesbank and the Swiss National Bank avoided it and kept inflation near 3%. In 2008 a prominent economist predicted inflation targeting would fail under high oil and food prices, yet none of the 23 countries using it dropped the framework. Inflation targeting is in fact designed to handle supply shocks by anchoring expectations. With a new wave of shocks this decade and fresh memories of high inflation, credibility must be guarded.

5. Holding the new 3% target

The bank projects core inflation near 4% in early 2027. Higher rates support the rand and therefore import prices, and they tell firms that raising prices in strong demand will cost them customers, so that the burden does not fall on the old and poor. He ruled out returning to the 3-6% range, calling the 2002 retreat a major mistake. Inflation is expected at 4.4% this year and 3% by 2028, below what the old 4.5% goal implied. Auction yields remain about 150 basis points below early 2025, the spread over US Treasuries is the narrowest since 2013, and rating agencies have improved their outlooks. Further moves will be decided meeting by meeting, but the goal is a return to 3%.

1. Scenarios for an unpredictable world

At the Reykjavík Economic Conference, the Governor of the Bank of England recalled that a year earlier he had explained how, after Ben Bernanke's review of its forecasting, the Bank would use scenarios to explore how shocks spread to inflation and how policy might react. That foresight proved useful: the Middle East conflict has curbed traffic through Hormuz and damaged energy facilities, a large negative supply shock for the world.

2. The shock to UK inflation

Before February, UK inflation was heading back to the 2% target from April, and with slack building and a softer labour market, further rate cuts were likely. Instead April inflation reached 2.8%, with household energy adding 0.8 point more than expected, and it should rise further as utility bills and supply-chain costs climb. As an energy importer, Britain faces a loss of real income that policy cannot prevent; the outcome depends on whether Hormuz reopens and infrastructure is repaired. The Bank's task is to stop inflation from becoming entrenched and bring it back to 2% over the medium term.

3. A flexible target and the lambda question

Since the 1998 Act, the Bank sets policy independently to achieve price stability, under an annual remit from the government and accountable to Parliament, which protects the promise of low inflation from political temptation. The 2% target applies at all times, but the remit accepts that returning to it too fast could cause unwanted swings in output. It does not say how much weight output should get, the parameter economists call lambda, which makes the remit an incomplete contract leaving the committee constrained discretion. He sees this as deliberate: the right weight depends on the shock, high when a temporary price jump can be ignored, low when expectations are at risk. When inflation deviates by more than one point, the Governor writes an open letter to the Chancellor. Compared with a dual mandate, the UK framework puts price stability first but leaves more freedom in managing trade-offs.

4. Applying it to the energy shock

Direct energy effects are usually looked through, since rate rises would hit after the shock fades and would require extra slack to offset them, so lambda is high there. Indirect effects through supply chains last longer and justify a moderate weight. Second-round effects, where higher expectations feed wage claims and then prices, deserve a low weight, but they are uncertain and slow to appear, so the Bank cannot wait for proof yet risks overreacting. Given economic weakness, tolerating temporarily higher inflation is reasonable, but that tolerance would shrink if second-round signs emerged.

5. The current decision

The April report presented three scenarios without a central projection or probabilities because of the unpredictable conflict, covering its length, the scale of energy price rises and the risk of persistence. Holding Bank Rate at 3.75% was an active choice: removing expected cuts has already tightened conditions, with mortgage rates up. Weak activity should limit second-round effects, though they would grow with larger and longer energy price rises, and policy will be adjusted as events unfold.

1. Napoleon's dilemma

Speaking in Phnom Penh, the President of the ECB opened with Napoleon, who wanted the Banque de France under government control only up to a point, and then tightened his hold on it. The tension remains: a central bank must stay close to the state yet resist short-term pressure. Although the inflation of the 1970s came mainly from oil shocks that central banks misread, later research showed that less independent central banks produced higher and more lasting inflation, and by 2000 over 80% had operational independence.

2. Law is not enough

Independence spread mostly through statutes, while its founders knew that legal status must be matched by proven resistance to interference. In a favourable world of globalisation, rare supply shocks and ample budgets, the difference hardly mattered, and low inflation owed much to that context. As conditions change, credibility gained through action becomes decisive, precisely when decisions are costly and politically sensitive.

3. The ECB's experience

The ECB began in 1998 with legal protections among the strongest anywhere, modelled on the Bundesbank, but no track record; as Lamfalussy foresaw, it would be judged on its deeds. Early vigilance on prices, then unconventional tools during the debt crisis and the era of very low inflation, upheld by courts as within the mandate, and finally the record-fast tightening of 2022, which kept long-term expectations anchored, built that authority over twenty-five years.

4. A harder environment

Supply shocks now occur more often and push prices and output in opposite directions; defence, climate, digital and ageing costs squeeze budgets; and trust in public institutions is falling. De facto independence has weakened over the past decade in nearly half of central banks in economies representing 75% of world GDP. When the Fed Chair defended his institution, public support earned over years helped contain the pressure. Central banks in emerging economies, used to commodity, capital and climate shocks under tight budgets, have long faced what others now discover.

5. Three conditions and a lesson

First, a clear mandate with price stability on top, even at a short-term cost; the Eurosystem supports EU goals only without harming that priority. Second, direct communication with citizens, transparency and accountability, so that words and actions match. Third, room for manoeuvre, which requires sustainable public finances and a resilient financial system, including newer non-bank segments. Trust takes years to build and can vanish quickly, and preserving the value of money depends on it.