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No kidding, central banks are stepping up the fight against inflation

By on May 5, 2022 0

LONDON, May 5 (Reuters) – In a race against soaring inflation, central banks in the United States, Britain and Australia all raised interest rates this week.

Stubbornly high inflation also prompted Iceland to raise rates by one percentage point on Wednesday, and India made an unanticipated rate hike.

Some, like the Bank of England, fear their economies are heading into recession, but that hasn’t stopped them from signaling that more hikes are ahead.

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Here’s a look at where policymakers stand on the road to pandemic-era recovery, ranked in terms of warmongering.

The rate hike cycle is on

1) NORWAY

Norway’s central bank, Norges Bank, kept rates unchanged on Thursday after raising them a quarter point to 0.75% in March, when it announced plans to tighten policy faster than expected.

It plans to hike again in June and raise rates to 2.50% by the end of 2023, with three more hikes than previously expected.

The Reserve Bank of New Zealand is one of the most hawkish central banks in the world.

It raised its key rate last month by 50 basis points to 1.5%, the biggest hike in two decades and the fourth hike in this cycle. With inflation at a 30-year high, markets expect another 50bp hike this month – RBNZ expects rates to peak around 3.35% by the end of 2023 . Read more

RBNZ is getting aggressive

3) CANADA

The Bank of Canada kicked off its rate hike cycle in March and raised rates last month by 50 basis points to 1%, its biggest move in more than two decades.

It also lets maturing bonds leave its balance sheet. BoC Governor Tiff Macklem believes rates are still well below neutral levels, estimated at 2% to 3%. Markets expect rates to approach 3% by the end of the year, with another half-point hike on June 1.

The BoE raised rates to 1% on Thursday, their highest level since 2009, to rein in inflation which it now expects to top 10% this year. Read more

Policymakers have also toughened their language on the need for further tightening in the coming months, so much so that two of the BoE’s nine ratemakers have called the guidance too strong given the risk that Britain’s Britain falls into recession.

Markets expect rates to reach 2% to 2.25% by the end of 2022.

UK inflation hits 30-year high at 7%

5) UNITED STATES

The Federal Reserve raised its benchmark rate by 50 basis points on Wednesday, the biggest jump in 22 years, and markets were relieved the Fed had not opted for a 75 basis point move.

Still, the Fed has said it’s ready for more half-point hikes and plans next month to start trimming its $9 trillion buffer of assets built up during the coronavirus pandemic to help to control inflation.

Central bank balance sheets are expected to shrink

6) AUSTRALIA

The Reserve Bank of Australia raised rates 25 basis points to 0.35% on Tuesday and reported further for more . After months of insisting that rate hikes were a long way off, the RBA has finally joined the rate hike club.

The dramatic change in policy came after data showed consumer inflation in the first quarter hit 20-year highs of 5.1%. Core inflation rose to 3.7%, above the RBA’s target range for the first time since 2010 more .

Futures prices point to rates reaching 2.5% by the end of 2022 and 3.5% by mid-2023, which would be the most aggressive RBA tightening cycle in modern history .

A latecomer to the battle against inflation, Sweden’s Riksbank last week raised rates by 25 basis points to 0.25% to contain inflation at its highest since 1991 at over 6%. Read more

The Riksbank’s key rate is now positive for the first time since 2014. It said as recently as February that rates are not expected to rise until 2024. Now it expects to rise two or three more times this year , with more next year to take rates above 1%.

The dovish European Central Bank has become more hawkish given record inflation at 7.5%.

ECB board member Isabel Schnabel said this week that rates may need to rise as early as July. A precursor to any rate hike must be an end to bond buying, and that could come in late June, she added. Read more

Markets are forecasting a 90 basis point tightening this year, which means that the -0.50% key deposit rate could soon break out of negative territory.

Eurozone inflation is well above its 2% target

9) SWITZERLAND

The Swiss National Bank remains firmly dovish even though Swiss inflation jumped to 2.4% in March, well above the SNB’s price stability target of 0%-2%.

He declined to point to higher rates, insisting that a strong franc helps hedge against inflation.

Intervention SNB and CHF

10) JAPAN

The Bank of Japan remains the recalcitrant dove.

Last week, he reinforced his pledge to keep rates rock-bottom by pledging to buy unlimited amounts of bonds to defend a bond yield target. This sent the yen to its lowest level in two decades against the dollar. Read more

Japan’s core consumer prices rose at their fastest pace in more than two years in March, but a fragile economy means the BOJ is in no rush to tighten policy.

BOJ and CPI

($1 = 0.9329 Swiss francs)

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Reporting by Sujata Rao, Saikat Chatterjee, Yoruk Bahceli, Tommy Wilkes and Dhara Ranasinghe; Compiled by Dhara Ranasinghe; edited by Tomasz Janowski

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