The writer is head of macro research at BNP Paribas Asset ManagementWe are on the cusp of a change in central bank tactics. Rates may still rise a little further, but we are probably close to the end of the hiking cycle. The focus is shifting towards keeping rates at these high levels, potentially for an extended period.

If policymakers want the market to embrace the “long hold” narrative, so that financial conditions stay tight and policy continues to exert downward pressure on inflation, they will need to provide a credible explanation as to why rates will stay high for an extended period. Forward guidance without a rationale may not anchor rate expectations for long. That rationale may not be easy to come by.

The policy rate is not a very powerful tool. A standard quarter-point change in rates has a very modest impact on inflation. It should take very little news about inflation to trigger an offsetting change in interest rates. For rates to remain unchanged for the next year or more should therefore require that nothing much happens. It would be a surprise if the volatility of recent months suddenly gives way to an extended period of macro tranquillity.