Through late-2007 and into 2008, central banks – including the ECB – have continued to provide funds to promote a smoother functioning of the interbank money market. However, the cost of term borrowing for banks in this market has remained high.
And the sentiment is shared internationally, as remarks by Bank of Canada Governor Tiff Macklem attest: “If we don’t do enough [policy tightening], Canadians will continue to endure the hardship of high inflation. And they will come to expect persistently high inflation, which will require much higher interest rates and, potentially, a severe recession to control inflation. Nobody wants that” (Macklem, 2022).