No messing around, central banks ramp up inflation fight

div classBodysc17zpet90 cdBBJodivpLONDON Reuters – In a race to get on top of surging inflation, central banks in the United States, Britain and Australia, all jacked up interest rates this week. p

pStubbornly high inflation also prompted Iceland to lift rates by one percentage point on Wednesday, and India delivered an unscheduled rate rise. pdivdivdiv classBodysc17zpet90 cdBBJodiv

pSome, such as the Bank of England, worry their economies are headed for recession, but that ha not stopped them from signalling more hikes are coming.p

pHere is a look at where policymakers stand on the path out of the pandemicera stimulus, ranked in terms of hawkishness. p

p1 NORWAY p

pNorways central bank, Norges Bank, kept rates on hold on Thursday after hiking them by a quarter point to 0.75 in March, when it announced plans to tighten policy more quickly than previously planned. p

pIt plans to hike again in June and raise rates to 2.50 by end2023, with three more hikes than projected previously. p

p2 NEW ZEALANDp

pThe Reserve Bank of New Zealand is one of the worlds most hawkish central banks.p

pIt raised its cash rate last month by 50 bps to 1.5, the biggest rise in two decades and the fourth hike in this cycle. With inflation at 30year highs, markets expect another 50 bps hike this month — the RBNZ forecasts rates will peak around 3.35 by end2023. p

p3 CANADA p

pThe Bank of Canada kicked off its raterise cycle in March, and raised rates last month by 50 bps to 1, its biggest single move in over two decades.p

pIt is also letting maturing bonds roll off its balance sheet. BoC Governor Tiff Macklem reckons rates are still far below neutral levels, estimated between 23. Markets expect rates to approach 3 by yearend, with another halfpoint rise seen on June 1. p

p4 BRITAINp

pThe BoE hiked rates to 1 on Thursday, their highest since 2009, to tame inflation it now forecasts will top 10 this year.p

pPolicymakers also hardened their language on the need for more tightening in the coming months, so much so that two of the nine BoE rate setters called the guidance too strong given the risk of Britain falling into recession.p

pMarkets expect rates to reach 22.25 by end2022. p

p5 UNITED STATES p

pThe Federal Reserve on Wednesday raised its key rate by 50 bps, the biggest jump in 22 years, and markets were relieved that the Fed did not go with a 75 bps move. p

pStill, the Fed said it was ready to deliver more halfpoint hikes and plans next month to start reducing its 9 trillion stash of assets accumulated during the coronavirus pandemic to help bring inflation under control.p

p6 AUSTRALIA p

pThe Reserve Bank of Australia raised rates by 25 bps to 0.35 on Tuesday and flagged more ahead. Having insisted for months that rate hikes were way off, the RBA finally joined the raterise club.p

pThe policy seachange came after data showing firstquarter consumer inflation spiking to 20year peaks of 5.1. Core inflation hit 3.7, above the RBA target band for the first time since 2010.p

pFutures pricing points to rates reaching 2.5 by end2022 and 3.5 by mid2023, which would be the most aggressive RBA tightening cycle in modern history.p

p7 SWEDEN p

pA latecomer to the inflation battle, Swedens Riksbank last week notched up rates by 25 bps to 0.25 to contain inflation running at its highest since 1991 at above 6. p

pThe Riksbanks policy rate is now positive for the first time since 2014. It had said as recently as February that rates were not expected to rise until 2024. Now it expects to hike two or three more times this year, with more next year to take rates above 1. p

p8 EURO ZONE p

pThe dovish European Central Bank has become more hawkish given recordhigh inflation at 7.5. p

pECB board member Isabel Schnabel said this week rates may need to rise as soon as July. A precursor to any rate hike must be the end of bond purchases, and this could come at the end of June, she added.p

pMarkets price 90 bps of tightening this year, meaning the key 0.50 depo rate could exit negative territory soon. p

p9 SWITZERLAND p

pThe Swiss National Bank remains firmly dovish even though Swiss inflation surged to 2.4 in March, well above the SNBs price stability goal of 02.p

pIt has refused to signal higher rates, insisting that a strong franc helps guard against inflation. p

p10 JAPANp

pThe Bank of Japan remains the holdout dove. p

pLast week it strengthened its commitment to keep rates ultralow by vowing to buy unlimited amounts of bonds to defend a bond yield target. That sent the yen to twodecade lows against the dollar.p

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

p1 0.9329 Swiss francsp

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pp Reporting by Sujata Rao, Saikat Chatterjee, Yoruk Bahceli and Dhara Ranasinghe Compiled by Dhara Ranasinghe editing by Tomasz Janowskip

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