© Reuters. PHOTOGRAPHY: Euro, Hong Kong dollar, US dollar, Japanese yen, pound and 100 Chinese yuan banknotes can be seen in this pictorial illustration, January 21, 2016. REUTERS / Jason Lee / Illustration / File Photo
LONDON (Reuters) – US Federal Reserve started in 2022 with a clear message: rates will rise to curb rising inflation.
Other central banks have already begun to raise rates, and even those with pigeons are beginning to give in to incentives released to protect their economies from the COVID-19 pandemic.
Here’s a look at where policymakers stand in the way of emerging from the pandemic era stimulus, in the order in which hawks appear: (Graphics: central bank balance sheets, https://fingfx.thomsonreuters.com/gfx/mkt/klvyknowjvg/theme1612 .PNG)
Norway’s central bank has solidified its position as the most aggressive rate-setter in the developed world, raising rates in December after it began tightening policy in September.
The bank raised rates to 0.5% last month, and at a meeting in January announced an increase in rates in March. (Graph: New Zealand and Norway lead with increasing rates among developed economies, https://fingfx.thomsonreuters.com/gfx/mkt/mopanqrdzva/CBANKS1712.PNG)
2) NEW ZEALAND
New Zealand increased its rates to 0.75 percent for the second time in November and is projected to reach 2.5 percent by 2023.
Annual consumer inflation reached its highest level in three decades in the fourth quarter, and the policy of cementing expectations will be tightened at a central bank meeting on February 23.
The Bank of England is expected to raise rates next week, after surprising markets with a rate hike in December.
Explaining its increase of 15 bps to 0.25%, the BoE said inflation is likely to reach 6% in April – triple its target – and that a further rate increase is likely to be needed.
Markets are priced with a 90% chance of increasing rates in February and are predicting four increases of 25 basis points by the end of 2022 (Graph: UK inflation, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoaooopx/uk%20inflation % 20chart.PNG)
4) UNITED STATES
The Federal Reserve on Wednesday signaled its intention to raise interest rates in March and reaffirmed plans to end bond purchases that month, for which US Federal Reserve chief Jerome Powell has vowed to continue fighting to curb inflation.
The possibility that the Fed could move even more aggressively upset Wall Street, leading to the biggest monthly drop since March 2020.
German bank (DE 🙂 expects the Fed to raise interest rates at each meeting from March to June and then return to the three-month tightening cycle from September, which is five increases this year. Nomura, on the other hand, predicts a move of 50 bps in March. (Graphics: UST Yield Range, https://fingfx.thomsonreuters.com/gfx/mkt/gkplgjmrrvb/UST%20yield%20spread.JPG)
The Bank of Canada surprised some on Wednesday by deciding not to raise the 0.25 percent interest rate, but Governor Tiff Macklem said the bank was on an “upward trajectory”. https://www.reuters.com/business/finance/hike-or-not-its-toss-up-ahead-bank-canada-rate-decision-2022-01-26
Inflation in December of 4.8% was the highest since 1991 and well above the bank’s control range of 1% -3%. Markets price a 90% chance of an increase to 0.50% on March 2, with at least five increases this year.
With the highest consumer inflation since 2014 and the strongest labor market since 2008, the Reserve Bank of Australia will face tremendous pressure at next week’s meeting to abandon its pigeon stance.
It has already moved towards easing the pandemic boost by rejecting the ultra-low bond yield target and opening the door to increase the rate for 2023, compared to the previous forecast for 2024.
But while Gov. Philip Lowe said a rate increase in 2022 is unlikely, a Reuters analyst poll predicts the RBA will increase rates in November and end QE next week.
Sweden has abolished credit opportunities from the pandemic era, but announced an increase in interest rates only at the end of 2024.
Total inflation in December was 4.1% against the 2% target. The rise in December is largely due to electricity prices, and overall price pressures remain modest, central bank governor Stefan Ingves said earlier this month.
8) EURO ZONE
The European Central Bank is on a completely different path than most of its counterparts.
Last month, it was announced that it would complete its 1.85 trillion-euro pandemic emergency purchase scheme by the end of March.
Although inflation is at a record high of 5%, the ECB expects inflation to retreat and says an increase in the rate this year is unlikely. However, he promised ample support through his long-standing Asset Purchase Program and signaled a very gradual exit from the years of ultra-light politics. (Graphics: Life after PEPP looms in the eurozone, https://fingfx.thomsonreuters.com/gfx/mkt/byprjqabjpe/ECB1712.PNG)
The Bank of Japan has taken tentative steps to mitigate the stimulus, promising to slow the purchase of corporate bonds and commercial papers to pre-pandemic levels since April.
It raised inflation forecasts this month, but dispelled speculation that it could soon signal a change in its decade-old stimulus experiment, saying it was in no hurry to change its ultra-loose monetary policy.
The Swiss National Bank remains at the bottom of the central bank spectrum, despite higher inflation, and says its loose stance was appropriate.
However, faced with a boom in real estate, this week he told lenders to hold additional capital of 2.5% of risk-weighted positions backed by residential real estate.