Interest rates may stay higher than expected in 2024-25: World Bank report

Interest rates could remain higher than expected in 2024 and 2025 as global commodity prices level off, the World Bank said in a report released Thursday.

The report also noted that a significant flare-up in the Middle East could further stoke global inflation.

"A key force for disinflation-falling commodity prices has essentially hit a wall. That means interest rates could remain higher than currently expected this year and next. The world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years," said Indermit Gill, chief economist, World Bank. The World Bank's index of commodity prices has remained unchanged since mid-2023. The new Commodity Outlook projects prices are expected to decline 3% in 2024 and 4% in the following year.


However, it noted that it is unlikely to have an impact on inflation, which has remained high across countries. "It will keep commodity prices about 38% higher than they were on average in the five years before the Covid-19 pandemic," it said.

Experts have pushed the possibility of a cut by the RBI to the year's second half, given geopolitical concerns and the possibility of higher rates for longer in the US. The RBI's monetary policy committee held the policy rate at 6.5% for the seventh consecutive time at its meeting in April. "One critical factor behind this divergence relates to heightened geopolitical tensions that are keeping upward pressure on prices of major commodities and stoking risks of sharp price movements. Central banks must remain alert about the inflationary implications of commodity-price spikes amid elevated geopolitical tensions," said Ayhan Kose, deputy chief economist, World Bank.