Latest News

Central banks unleash 350 basis points more of rate hikes in inflation fight

0

3/3
© Reuters. FILE PHOTO: A general view of the Bank of England (BoE) building, the BoE confirmed to raise interest rates to 1.75%, in London, Britain, August 4, 2022. REUTERS/Maja Smiejkowska
2/3

LONDON (Reuters) – Major central banks have stepped up their fight against runaway inflation, unleashing another 350 basis points of hikes in a pivotal week in which policymakers are determined to show they mean business.

The Federal Reserve raised U.S. rates by three-quarters of a percentage point for a third straight time on Wednesday, while the British, Swiss and Norwegian central banks all delivered large hikes on Thursday.

Central banks in the 10 big developed economies have raised rates by a combined 1,965 basis points in this cycle to date, with Japan the holdout “dove”, sticking on Thursday with its ultra-low rates policy.

Here’s a look at where policymakers stand in the race to contain inflation, from hawkish to dovish.

GRAPHIC: Central banks ramp up fight against inflation https://graphics.reuters.com/GLOBAL-CENTRALBANKS/klvykaanlvg/chart.png

1) UNITED STATES

The Federal Reserve lifted rates by 75 bps on Wednesday, vaulting the dollar index to a two-decade high. Fed Chair Jerome Powell signalled further increases were due and warned there was no painless way to contain inflation.

The Fed’s new projections showed its policy rate rising to 4.4% by year-end, before peaking at 4.6% in 2023. Rate cuts are not expected until 2024.

GRAPHIC: Fed delivers another big hike https://graphics.reuters.com/USA-FED/zgpomogezpd/chart.png

2) CANADA

Money markets bet the Bank of Canada will raise its policy rate by 50 bps in October to 3.75%. The BoC will do whatever is needed to bring price increases back to target, a Bank of Canada official said on Tuesday.

On Sept. 7, the BoC hiked its policy rate to 3.25%, its highest level in 14 years. Canada was the first among the world’s advanced economies in the current policy-tightening cycle to deliver a 100 bps rate.

GRAPHIC: Canada goes big again to tame inflation https://graphics.reuters.com/CANADA-CENBANK/lbpgnkbxnvq/chart.png

3) NEW ZEALAND

The Reserve Bank of New Zealand last month delivered its seventh straight hike – and fourth consecutive rise of 50 bps – to lift rates to 3%, the highest since September 2015.

The RBNZ struck a more hawkish tone and sees rates at 4% by early 2023, versus a previous projection of 3.7%. That implies at least one more 50 bps rate hike at upcoming meetings.

GRAPHIC: New Zealand monetary policy https://graphics.reuters.com/NEWZEALAND-CENBANK/gdvzyxdzepw/chart.png

4) BRITAIN

The Bank of England hiked interest rates by 50 bps on Thursday, less than the 75 bps some in the market had expected. The BoE also forecast a peak in inflation just below 11%, down from an earlier forecast of 13.3%.

But the prospect of entrenched double-digit inflation, and the need for the BoE to tighten monetary policy as a new government loosens fiscal policy, has caused investors to jack up their rate hike expectations. Money markets were on Thursday pricing in a peak in rates at around 4.9% by June 2023.

GRAPHIC: Bank of England under pressure https://graphics.reuters.com/BRITAIN-BOE/zgvomooybvd/chart.png

5) NORWAY

Norway, the first big developed economy to kick off a rate-hiking 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 currency.

GRAPHIC: Sustained hikes https://graphics.reuters.com/NORWAY-ECONOMY/RATES/lbvgnkkbwpq/chart.png

6) AUSTRALIA

The Reserve Bank of Australia hiked by another 50 bps earlier in September, for a fifth month running. But the central bank dropped a reference to “normalising” policy, suggesting rates were now closer to neutral, while flagging it had more work to do.

The RBA has delivered 225 bps of hikes since May, taking its key rate to a seven-year high of 2.35%.

GRAPHIC: RBA looks for a path back to inflation target https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/myvmnzgjepr/chart.png

7) SWEDEN

Sweden raised rates on Tuesday by a larger-than-expected one percentage point to 1.75% and warned of more to come over the next six months as it gets to grips with surging inflation.

The rate hike was the biggest since the inflation target was adopted in 1993, equalling the full percentage point hike of November 1992 during Sweden’s domestic financial crisis when the main rate hit 500% for a short period.

GRAPHIC: Riksbank hikes to control surging inflation https://graphics.reuters.com/GLOBAL-CENTRALBANKS/jnpwemdampw/chart.png

8) EURO ZONE

The ECB was late to the hiking game but is catching up fast.

Earlier in September, the euro zone’s central bank hiked rates by a record 0.75%, bringing its deposit rate to 0.75% and its main refinancing rate to 1.25%, their highest levels since 2011.

The ECB said it was “frontloading” policy to get a hold of inflation and it implied rate rises could continue into early 2023 even as the bloc braces for recession.

That pushed traders to ramp up bets on a sequence of large hikes. Money markets now price in around 70 bps of hikes in both October and December. They see rates peaking at over 2.8% in mid-2023, compared to 2.2% before the meeting.

GRAPHIC: ECB monetary policy https://graphics.reuters.com/GLOBAL-CENTRALBANKS/gkvlgnlyxpb/chart.png

9) SWITZERLAND

The Swiss National Bank (SNB) raised its policy rate on Thursday by another 75 basis points from minus 0.25% to 0.5% as expected, putting an end to the negative rates experiment in Europe.

The bank, delivering its second rate hike this cycle, also raised its inflation forecasts for 2022 and 2023 to 3% and 2.4% respectively, adding it couldn’t rule out that further rate hikes will be needed to control inflation.

GRAPHIC: SNB exits negative rates era https://graphics.reuters.com/GLOBAL-CENTRALBANKS/zdpxommayvx/chart.png

10) JAPAN

Japan is the sole remaining policy dove and on Thursday the Bank of Japan maintained its ultra-low interest rates and policy guidance.

It reassured markets that it will continue to swim against a global tide of monetary policy tightening. But Japanese authorities also intervened to shore up the weak yen, which has been hurt by the policy divergence between Japan and the United States.

GRAPHIC: Bank of Japan leaves rates unchanged https://graphics.reuters.com/GLOBAL-CENTRALBANKS/zjvqkrrdmvx/chart.png

Our Apps



Terms And Conditions
Privacy Policy
Risk Warning

© 2007-2022 Fusion Media Limited. All Rights Reserved.

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Euro zone yields hit new multi-year highs after global rate hikes

Previous article

UK gilts suffer biggest collapse since March 2020 meltdown

Next article

You may also like

Comments

Leave a reply

Your email address will not be published.

More in Latest News