New Delhi [India], October 7 (ANI): As the Reserve Bank of India joined a broader global monetary tightening trend with a 25-basis-point rate hike on Wednesday, global investment manager PIMCO said major central banks may ultimately not need to raise interest rates as much as financial markets currently expect.
In its October 2026 Cyclical Outlook, released on October 6, PIMCO said the recent rise in energy prices has pushed up inflation and led investors to expect further monetary tightening across major economies. However, it expects some of those rate increases may eventually prove unnecessary.
“Our baseline is that the Federal Reserve and other major central banks ultimately won’t need to fully deliver the amount of interest rate hikes currently priced into markets,” PIMCO said in the report.
The assessment comes at a time when central banks are again raising borrowing costs as higher energy prices revive inflation concerns.
The RBI’s Monetary Policy Committee on Wednesday unanimously raised the policy repo rate by 25 basis points to 5.50 per cent, its first increase in nearly four years.
The US Federal Reserve raised its target interest rate range by 25 basis points in September to 3.75-4.00 per cent, while the European Central Bank also raised its three key policy rates by 25 basis points last month, taking its deposit facility rate to 2.50 per cent.
PIMCO said the tightening expected across developed and emerging market economies has been well communicated and is already largely reflected in financial markets.
Its view rests partly on the expectation that the current energy-driven inflation shock will ease rather than become a persistent source of price pressure.
“We therefore expect stable global growth to continue in our baseline while inflation moderates as the energy price shock fades,” PIMCO said.
The report noted that despite sharply higher energy prices due to the conflict in the Middle East, the global economy has so far remained resilient, including in energy-importing countries. It also said the rise in energy costs has had only modest spillovers into underlying inflation and wage growth.
That distinction is important for the future course of interest rates. If higher oil and other energy prices do not feed more broadly into wages and prices, central banks may have less need to keep raising rates aggressively.
However, PIMCO cautioned that this relatively benign outlook depends on the energy shock easing. An escalation of the Middle East conflict could push energy prices higher and force central banks to tighten monetary policy more than currently expected.
“A more severe or persistent energy shock – in addition to increasing the risk of a central bank policy response – could impose a larger real-income burden on households and businesses,” the report said.
PIMCO said another risk is that policymakers, after several years of above-target inflation and repeated supply shocks, become more concerned about temporary price increases becoming embedded in inflation expectations. Under such a scenario, central banks could end up tightening monetary policy more, rather than less, than markets currently anticipate. (ANI)
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