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Over the past 2–3 years, the world has witnessed significant economic changes — starting from the outbreak of COVID-19, economic stimulus through monetary policy, to skyrocketing inflation. In the past, when the economy slowed down or inflation decreased, central banks would usually “cut interest rates” to stimulate consumption and investment. But by 2025, the world is facing the reality that high interest rates may stick around longer than many had expected.
Even though inflation has begun to decline in 2025, many central banks have not lowered interest rates as they did in the past. This raises the question: Are high interest rates becoming the new normal for the global economy?
The global trend of raising interest rates by central banks — especially the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) — began in 2022–2023 in response to rapidly rising inflation. During the COVID era, many countries relied on monetary policies that injected liquidity into the system, including cutting interest rates to near 0% and printing more money. As people had more cash on hand, demand rose abnormally, driving prices up.
Currency: Capital flows into currencies with higher interest yields, strengthening those currencies.
Despite expectations throughout late 2024 to mid-2025 that major central banks — like those in the U.S., EU, and even the Bank of Thailand — would begin easing rates to stimulate the economy and reduce living costs, interest rates have largely remained elevated. Some central banks have even signaled they will maintain high rates at least through the final quarter of the year.
One key reason central banks are holding back on rate cuts is that labor markets remain strong. In countries with recovering economies, unemployment remains below target levels and consumer spending power is still intact. This indicates that the economy hasn’t cooled down enough to justify cutting rates without risking a resurgence of inflation.
Even though many are eagerly awaiting rate cuts, high interest rates in 2025 aren’t just about central banks fighting inflation. They also reflect a global economy that is still recovering well, with resilient labor markets. Central banks are choosing to keep rates steady to ensure inflation doesn’t return.
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