Central banks in the US, Canada, Australia, Switzerland and elsewhere have been lining up for aggressive rate hikes recently and the European Central Bank last month made its first rate hike since 2011. .
Japan, which has yet to raise rates this cycle, is the chosen dove among the 10 major developed economies.
In total, these central banks have so far raised rates in this cycle by a total of 1,315 basis points.
Here is an overview of the position of policy makers in the race to control inflation.
G10 interest rate:
1) UNITED STATES
Last week, the Federal Reserve carried out its second consecutive rate hike of 75 basis points. Fed officials reiterated their determination to control runaway inflation through tighter monetary policy.
US inflation hit 9.1% in June, the highest level in over 40 years. Markets estimate a 48% chance of a third 75 basis point move in September. Even if concerns about growth increase, analysts believe that controlling inflation will remain the Fed’s priority.
US inflation remains at high levels:
Last month, the Bank of Canada made the first 100 basis point rate hike among the world’s advanced economies in the current policy tightening cycle. It raised its key rate to 1.5%.
With annual inflation at 8.1%, the highest in 39 years, analysts say another big rate hike is likely.
Canada in the hawkish camp:
3) NEW ZLAND
The Reserve Bank of New Zealand made its sixth consecutive rate hike on July 13, raising the official bank rate by 50 basis points to 2.5%, a level not seen since March 2016.
It remains comfortable with its aggressive tightening path planned to curb runaway inflation.
The Reserve Bank of New Zealand is getting aggressive:
The Bank of England on Thursday raised its key rate by half a percentage point to 1.75% – its highest level since the end of 2008.
But the BoE warned that Britain was facing a recession with a 2.1% drop in output from peak to trough, similar to the 1990s but well below the impact of COVID-19 and slowdown caused by the global financial crisis of 2008-2009.
BoE rate movements:
Norway, the first major developed economy to launch a rate hike cycle last year, raised rates by 50 basis points on June 23 to 1.25%, the biggest single hike since 2002 .
Norges Bank plans to raise rates by 25 basis points in each of its four remaining monetary policy meetings in 2022, although larger increases are also possible, Governor Ida Wolden Bache said.
The Reserve Bank of Australia raised rates by 50 basis points on Tuesday, tightening its policy for the fourth consecutive month. But it has tempered its forecasts for further increases, as it foresees an acceleration in inflation but also a slowdown in the economy.
The RBA has now made 175bp hikes since May, taking its key rate to 1.85%, in the most drastic tightening since the early 1990s.
Movement of G10 policy rates:
Another laggard in the fight against inflation, the Swedish Riksbank raised its interest rate by half a percentage point on June 30 to bring it to 0.75%, its highest increase in more than 20 years.
Last February, the Riksbank forecast a no-change policy until 2024, but Governor Stefan Ingves now expects rates to hit 2% in early 2023 and has said a move of 75 percentage points is possible.
Last month, the European Central Bank raised its deposit rate by 50 basis points – more than expected – in its first rate hike since 2011 to combat runaway inflation. The decision to bring rates to 0% ended an eight-year experience of negative rates.
The bank is expected to raise rates again at its next meeting on September 8.
ECB monetary policy:
On June 16, the Swiss National Bank (SNB) unexpectedly raised its interest rate by 50 basis points to -0.75%, the lowest in the world, sending the franc soaring.
The franc’s recent weakness has helped push Swiss inflation to 14-year highs and SNB Governor Thomas Jordan has said he no longer sees the franc as highly valued. This opened the door to further rate hikes.
Japan is the restrained dove. In July, the Bank of Japan kept interest rates ultra-low at -0.1% and signaled its determination to keep them that way, even though it forecast inflation to exceed its target this year.
BOJ Governor Haruhiko Kuroda has said he has no plans to raise rates or raise the 0.25% implicit cap set for the bank’s 10-year bond yield target , as Japan is still recovering from the pandemic and its terms of trade have deteriorated.
The BOJ is the last dove standing: