The Norwegian and New Zealand central banks this week both implemented yet further interest rate rises and indicated additional tightening is imminent as policymakers globally scramble to curb rampant inflation.
Central banks from Canada to United States, Switzerland and Australia have organized aggressive rate hikes recently. The European Central Bank in July implemented its first rate increase since 2011. Japan, which is yet to hike rates in this cycle, is the holdout dove among the 10 large advanced economies.
In total, those central banks have until now hiked rates in this cycle by a combined 1,415 basis points. Here’s a look at where policymakers stand in the race to tame inflation.
The Federal Reserve in July implemented its second consecutive 75 basis-point (bps) rate hike. Though inflation shocked by not climbing in July, Fed officials have restated their dedication to contain fiery price pressures with tighter monetary policy.
Following the inflation print markets lowered their bets on a third 75 bps move next month, now seeing a 40% probability. Even as growth fears escalate, analysts say curbing inflation will continue to be the Fed’s priority.
The Bank of Canada in July implemented the first 100-bps rate rise among the world’s developed economies in the current policy-tightening cycle. It raised its key policy rate to 2.5%.
With annual inflation climbing way above target and the highest in almost four decades, analysts expect another rate rise next month is highly possible.
The Reserve Bank of New Zealand on Wednesday implemented its seventh consecutive rise – and fourth successive hike of 50 bps – to raise rates to 3%, the highest since September 2015.
Notably, the RBNZ also reached a more aggressive than expected tone as it fights surging inflation. It currently expects rates at 4% by early 2023, form its prior projection of 3.7%, indicating at least one more 50 bps rate rise in future meetings.
The Bank of England in August raised its key rate by half a percentage point to 1.75% – its highest level since late 2008.
In that context, the BoE also cautioned that Britain was encountering a recession with a peak-to-trough slump in output of 2.1%, identical to a fall in the 1990s. Despite those recession risks, double-digit inflation now has investors expecting rates won’t peak until a further 200 bps of hikes by May next year.
Norway, the first big advanced economy to start a rate-hiking cycle in 2021, on Thursday pushed up rates another 0.5% to 1.75% and said more rises were in the pipeline, possibly including one in next month.
The Reserve Bank of Australia in August jacked up rates by 50 bps, tightening policy for a fourth consecutive month. But it lowered guidance on further increases as it forecast higher inflation but also a downturn in the economy.
The RBA has currently implemented 175 bps of hikes since May, taking its key rate to 1.85%, in the most severe tightening since the early 1990s.
Another new-comer to the inflation fight, Sweden’s Riksbank implemented a 0.5% interest rate rise on June 30 to 0.75%, its largest hike in over two decades.
As recently as February, the Riksbank had forecast stable policy until 2024, but governor Stefan Ingves now anticipates rates to reach 2% in the beginning of 2023 and said 75 bps moves are likely.
The ECB in July lifted its deposit rate by 50 bps – more than it originally forecast – in its first rate hike since 2011 to battle surging inflation. The move to 0% stopped an eight year experiment with negative rates.
The bank is expected to raise rates again at its next meeting on Sept. 8, with money markets pricing a full possibility they will be raised to 0.5%.
On June 16, the Swiss Swiss National Bank (SNB) abruptly lifted its -0.75% interest rate, the world’s lowest, by 50 bps, sending the franc surging.
Latest franc weakness has played a part in driving Swiss inflation towards 14-year highs and SNB governor Thomas Jordan said he no longer regarded the franc as highly valued. That has allowed for further rate rises including at its next meeting on Sept. 22.
Japan is the holdout dove. The Bank of Japan last month preserved very-low interest rates of -0.1% and indicated its determination to keep them that way even as it forecast inflation would surpass its target in 2022.
BOJ Governor Haruhiko Kuroda said he had no plan to hike rates or raise a fixed 0.25% cap set for the bank’s 10-year bond yield target, since Japan was still bouncing back from the pandemic and its terms of trade had exacerbated.