Central banks around the globe extend November’s rate hike push

Central bank data shows that the policy tightening wave is shifting towards Asia and away from Latin America and emerging Europe, where the cycle is nearing its end. PHOTO: AFP

Published Mon, Dec 5, 2022 · 08:27 PM

THE pace and scale of rate hikes delivered by central banks in November picked up speed again as policymakers around the globe battle decade-high inflation.

Central banks overseeing six of the 10 most heavily-traded currencies delivered 350 basis points (bps) of rate hikes between them last month.

The US Federal Reserve, the Bank of England, the Reserve Bank of Australia, Norway’s Norges Bank, Sweden’s Riksbank and the Reserve Bank of New Zealand all raised interest rates in November.

The European Central Bank, the Bank of Canada, the Swiss National Bank and the Bank of Japan did not hold rate-setting meetings last month.

The latest moves brought total rate hikes in 2022 from the Group of Ten central banks to 2,400 bps.

Alexandra Dimitrijvic at S&P Global Ratings said that interest rates will continue to rise in 2023. “Central banks’ determination to bring down inflation suggests that policy rates need to go higher still.”

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Global financial markets have been on a roller coaster in recent weeks, as investors tried to gauge the speed and scale with which the US Federal Reserve and other major central banks will raise rates to combat inflationary pressures. Meanwhile, fears over a slowdown in global growth are spreading.

In the US, some nascent signs that inflation could be slowing brought cheer to markets recently, with Federal Reserve officials scheduled to meet next Tuesday and Wednesday.

Last week, Federal Reserve chair Jerome Powell said that the US central bank could scale back the pace of its rate increases “as soon as December”.

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After hikes of 75 basis points at their last two meetings, ECB officials appear to be increasingly open to a smaller move at their final gathering of the year on Dec 14-15.

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Economists have given a median 78 per cent chance of a recession in the EU within a year in a Reuters poll last month, and predicted the economy would contract 0.4 per cent this quarter.

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Bundesbank president Joachim Nagel notes that the ECB’s tightening push will eventually tame price growth that is currently running at five times its goal.

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Fed Chairman Jerome Powell says that wages are the largest cost for the services sector, so labour conditions are key to understanding the outlook on prices on everything from hotels to haircuts.

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Christine Lagarde, European Central Bank president, says that central banks must deliver a monetary policy that anchors expectations.

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Furiously buying gold again, central banks may think they are getting a bargain, with its price having slid 3 per cent this year.

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The bill, overseen by President Ferdinand Marcos Jr, proposes that the fund may invest in various types of instruments including, cash, foreign currencies, metals, tradeable commodities, bonds, Islamic investments and listed or unlisted equities.

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Data from central banks in emerging markets showed a similar pattern. In November, eight out of 18 central banks delivered 400 bps of rate hikes in total – up from 325 bps in October, but far from the above-800 bps tallies in both June and July.

Indonesia, South Korea, Mexico, Thailand, Malaysia, the Philippines, Israel and South Africa all hiked rates in November. This signals that the policy tightening wave is shifting towards Asia and away from Latin America and emerging Europe, where the cycle is nearing its end.

Nafez Zouk of Aviva Investors said that, except for a few countries, Europe’s emerging markets are “past the most intensive phase of the rate-hike cycle”.

Turkey, an outlier with President Tayyip Erdogan pushing for lower interest rates, delivered another 150 bps cut to bring rates down to single digits. This is despite inflation running above 80 per cent.

Not all emerging-market central banks sampled in the data had rate-setting meetings last month.

Calculations showed that, year to date, emerging-market central banks raised interest rates by a total of 7,165 bps, more than double the 2,745 bps for the whole of 2021. REUTERS

Central banks Interest rates Inflation

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