The international environment

Quarterly Bulletin 1992 Q1
Published on 01 March 1992
  • Recovery in the United States has come to a near standstill. High levels of indebtedness appear to have delayed the stimulus to expenditure expected from lower interest rates. The Japanese authorities are concerned about slower growth, and particularly the decline in private investment expenditure, while in Germany economic activity has slowed to a modest growth trend.
  • The underlying trend of inflation is fairly stable in most major overseas economies, although fears remain that rising labour costs will add to inflationary pressures in Germany. Year-on-year inflation rates have been affected by fluctuations in oil prices associated with the Gulf war.
  • The Federal Reserve moved away from its gradualist approach and cut the discount rate by a full percentage point to 3.5%, its lowest level for almost 30 years. All ERM countries, except for the United Kingdom, raised interest rates following the tightening by the Bundesbank on 19 December. As a result of the divergence in monetary policy, the differential between short-term interest rates in Germany and the United States widened further in December. The Bank of Japan lowered the official discount rate in response to a slowdown in growth.

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