Major central banks have intensified their fight against runaway inflation, rising another 350 basis points in a crucial week in which policymakers are determined to show they mean business.
The Federal Reserve on Wednesday raised US rates by three-quarters of a percentage point for the third time in a row, while British, Swiss and Norwegian central banks took big hikes on Thursday.
Central banks in the 10 large developed economies have hiked rates by a combined 1,965 basis points so far this cycle, with Japan “doves” the holdout, sticking to its ultra-low rates policy on Thursday.
Here’s a look at where policymakers stand in the race to control inflation, from hawkish to dovish.
1) United States
The Federal Reserve on Wednesday raised rates by 75 bps, pushing the dollar index to a two-decade high. Fed Chairman Jerome Powell indicated that further growth was on the way and warned that there is no painless way to control inflation.
New projections from the Fed show its policy rate raising to 4.4% by the end of the year, before reaching 4.6% in 2023. Rate cuts are not expected until 2024.
Money markets bet that the Bank of Canada will raise its policy rate by 50 bps to 3.75% in October. A Bank of Canada official said on Tuesday that the BoC will do whatever is necessary to get the price hike back on target.
On September 7, the BoC raised its policy rate to 3.25%, its highest level in 14 years. Canada was the first of the world’s advanced economies in the current policy-tightening cycle to provide a 100 bps rate.
3) New Zealand
New Zealand’s Reserve Bank last month gave its seventh straight increase – and fourth successive increase of 50 bps – to raise rates to 3%, the highest since September 2015.
The RBNZ struck a more brisk tone and saw rates of 4% in early 2023, compared to 3.7% in the previous estimate. That means at least another 50 bps rate hike in upcoming meetings.
The Bank of England raised interest rates by 50 bps on Thursday, lower than the 75 bps in the market. The BoE also forecast a peak in inflation at less than 11%, down from an earlier forecast of 13%.
But the prospect of deepening double-digit inflation, and the need for the BoE to tighten monetary policy as the new government loosens fiscal policy, has prompted investors to raise their rate hike expectations. . Currency markets were at a peak of about 4.9% on Thursday as of June 2023.
Norway, the first major developed economy to start a rate-growth cycle last year, on Thursday raised its benchmark rate by 50 basis points to 2.25%. But the central bank said future hikes would be more “gradual”, weakening the crown’s currency.
The Reserve Bank of Australia raised another 50 bps for the first fifth month in September. But the central bank dropped the reference to a “normalization” policy, suggesting that while rates were now closer to neutral, it had more work to do to flag.
The RBA has risen 225 bps since May, taking its key rate to a seven-year high of 2.35%.
Sweden on Tuesday raised rates by a percentage point higher than expected to 1.75% and warned of more coming in the next six months as it becomes vulnerable to rising inflation.
The rate hike was the largest since the adoption of an inflation target in 1993, equivalent to the absolute percentage increase of November 1992 during Sweden’s domestic financial crisis when the main rate was 500% for a short period.
8) Euro Zone
The ECB was late in the hiking game but is fast catching up.
Earlier in September, the euro area’s central bank raised rates to a record 0.75%, raising its deposit rate to 0.75% and its core refinancing rate to 1.25%, their highest level since 2011.
The ECB said it was a “front-loading” policy to control inflation and meant that rate hikes could continue into early 2023 even if the bloc prepares for a recession.
This prompted traders to bet on a larger uptrend sequence. The money market now moves around 70 bps in both October and December. They see rates as high as 2.8% in mid-2023, compared to 2.2% before the meeting.
The Swiss National Bank (SNB) cut its policy rate by 75 basis points from 0.25% to 0.5% on Thursday, as expected, ending the use of negative rates in Europe.
Delivering its second rate hike in this cycle, the bank raised its inflation forecasts for 2022 and 2023 to 3% and 2.4% respectively, saying no further rate hikes are required to control inflation. Will be
Japan is the only remaining policy pigeon and on Thursday the Bank of Japan maintained its ultra-low interest rates and policy guidance.
This reassured markets that it would continue to swim against the global tide of monetary policy tightening. But Japanese officials also intervened to shore up the weaker yen, which has been hurt by policy divergence between Japan and the United States.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)