Those moves and heightened uncertainty could lead to a significant tightening in euro zone and UK bank lending standards, Goldman Sachs said, although of less magnitude than during the 2008 financial crisis or 2011 euro zone debt crisis."Even assuming that market volatility does subside over the coming days and weeks, we think some residual tightness in financial conditions is likely to remain," said ABN AMRO senior economist Bill Diviney.
"Given that this will do some of the Fed's tightening work for it, by depressing lending to the real economy, this is likely to reduce the need for further policy tightening."Oil prices meanwhile are down 9% since March 9, another disinflationary factor that could help central bankers.Goldman Sachs said the tightening in bank lending standards it expects could subtract 0.25 to 0.
"An abrupt tightening of financial conditions matters only to the extent that the tightness is maintained and remains orderly," he said, adding that this depends on central banks maintaining their inflation-fighting resolve. Dario Perkins, managing director, global macro at consultancy TS Lombard and a former advisor to Britain's Treasury, called estimates of the impact recent turmoil would have on effective policy rates "largely guesswork".He expected smaller banks to restrict lending in a way that could have a big impact on smaller and medium-sized businesses, in a blow to aggregate demand.
"This will help the authorities to defeat inflation, but in a way that is uncontrolled and intractable, risking unnecessary hardship."
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