Interest Rate Hikes Loom? OECD Suggests Central Banks Stay Alert to Inflation

Interest rate hikes could be looming on the horizon, as the Organization for Economic Co-operation and Development (OECD) suggests central banks stay alert to the inflationary pressures generated by the trade war. The OECD has significantly lowered its global economic growth projections, now anticipating a decline from 3.3% in 2024 to 2.9% in both 2025 and 2026, underscoring the economic instability.
The OECD’s latest outlook report highlights that “weakened economic prospects will be felt around the world, with almost no exception,” leading to “lower growth and less trade [that] will hit incomes and slow job growth.” The report identifies the United States, Canada, Mexico, and China as major contributors to this anticipated global economic contraction, whose trade policies are influencing the economic landscape.
Crucially, the OECD emphasizes that “protectionism” will put pressure on inflation, meaning costs for goods and services will rise. In this context, the OECD suggests that central banks like the Bank of Canada “should remain vigilant.” While no interest rate hikes are expected from the Bank of Canada on Wednesday, the report cautions that if inflation does spike, there is “potential to return to a period of higher borrowing costs again.”
Beyond monetary policy, the OECD also stresses the importance of increasing investments to stimulate business development and improve public finances. This broader recommendation emphasizes that a multi-pronged approach is required to manage both inflationary pressures and the overall economic slowdown triggered by the trade conflict.