Australia hikes rates, but pause from big central banks is near

LONDON(Reuters) – Australia was the latest major central bank to raise rates and on Tuesday hinted at further hikes, even as most major central banks steadily move closer to a pause in aggressive monetary tightening as inflationary pressures show signs of easing.

Last week, the U.S. Federal Reserve implemented its smallest rise of its tightening cycle so far and markets suspect a peak is nearing from the European Central Bank and the Bank of England.

Overall, 10 big developed economies have raised rates by a combined 2,990 basis points in this cycle to date. Japan is the holdout dove.

Here’s a look at where policymakers stand, from hawkish to dovish.

The race to raise rates https://www.reuters.com/graphics/CANADA-CENBANK/zdpxdnajypx/chart.png

1) UNITED STATES

The Fed last week raised its benchmark interest rate by 25 basis points (bps) to a range of 4.50% to 4.75%, its smallest hike so far in an 11-month tightening cycle.

Fed Chair Jerome Powell said it would “not be appropriate” to cut rates in 2023 and warned inflation remained too high, pushing back against an exuberant market rally on hopes for eventual rate cuts. Friday’s strong U.S. jobs data has further dampened the rate-cut speculation.

Fed keeps promise of more hikes https://www.reuters.com/graphics/USA-FED/zgpobkryyvd/chart.png

2) CANADA

The Bank of Canada (BoC) on Jan. 18 lifted its key rate by 25 bps to 4.5%, the highest in 15 years.

BoC Governor Tiff Macklem told Reuters he was purely focused on whether borrowing costs should be higher, quashing market bets that cuts could come as soon as October.

Canada’s central bank has raised its policy rate at a record pace of 425 bps in 10 months. Inflation, which peaked at 8.1% and slowed to 6.3% in December, remains more than triple the BoC’s 2% target.

Bank of Canada keeps on hiking https://www.reuters.com/graphics/CANADA-CENBANK/egpbymdakvq/chart.png

3) NEW ZEALAND

The Reserve Bank of New Zealand (RBNZ) upped its pace of tightening in November, delivering a record 75-bps rate rise after five consecutive 50 bps rate increases.

Minutes from the meeting showed the RBNZ also considered a larger 100-bps hike but opted for a smaller increase. The central bank raised its forecast for its peak interest rate to 5.5%, up from a previous forecast of 4.1%.

New Zealand’s record rate hike https://www.reuters.com/graphics/NEWZEALAND-ECONOMY/lgpdknnlqvo/chart.png

4) BRITAIN

The BoE, the first major central bank to turn hawkish back in December 2021, last week lifted its Bank Rate for the tenth time running, to 4%, the highest since 2008. The BoE dropped a former pledge to keep increasing rates “forcefully” and said inflation had probably peaked.

BoE’s fight against inflation- https://www.reuters.com/graphics/BRITAIN-BOE/dwpkdeezmvm/chart.png

5) AUSTRALIA

Australia’s central bank raised its key rate by a quarter point on Tuesday to 3.35%, its highest level in a decade.

It was the ninth hike of the current cycle and RBA spelled out further rate hikes would be needed in coming meetings to bring inflation down from a 33-year high.

Taming inflation-https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/mopaklyjnpa/chart.png

6) NORWAY

Norway, which raised the curtain on the hawkish global trend by first raising rates in September 2021, kept its policy rate unchanged at 2.75% on Jan. 19.

The Norges Bank also noted inflationary pressures were easing and previous hikes were slowing the economy.

Hikes stalled- https://www.reuters.com/graphics/GLOBAL-CENTRALBANKS/jnvwyxxxxvw/chart.png 

7) EURO ZONE

The ECB raised its key rate by 50 bps to 2.5% last week, its fifth successive hike and the highest level since November 2008.

It said it intends to hike the rate by another 50 basis points in March to bring inflation down to its 2% medium-term target.

While euro zone headline inflation eased for a third month in January, falling to 8.5% from 9.2% in December, core inflation held steady at 5.2%.

ECB hikes again and signals more to come- https://www.reuters.com/graphics/GLOBAL-CENTRALBANKS/dwpkdeejmvm/chart.png

8) SWEDEN

Swedish inflation hit a 30-year high of 10.2% on the year in December, raising pressure on the Riksbank to keep lifting borrowing costs.

Sweden’s central bank hiked its key rate by 75 bps to 2.5% in November and next meets on Feb. 8.

Further hikes expected- https://www.reuters.com/graphics/GLOBAL-CENTRALBANKS/lgvdknnkepo/chart.png

9) SWITZERLAND

The Swiss National Bank (SNB) raised its policy rate by 50 bps to 1% in December, its third hike of 2022. Senior officials have signalled further increases could come this year.

SNB Chairman Thomas Jordan said last month that it was too early to sound the all-clear on inflation, although inflation eased to 2.8% in December from a year earlier.

Exit from negative rates- https://www.reuters.com/graphics/CEN-WRAP/znvnbkkjbvl/chart.png

10) JAPAN

The Bank of Japan, the most dovish major global central bank, inched closer to ending its ultra-easy monetary policy in December with a hawkish tweak to its yield-curve control scheme that it uses to pin down borrowing rates.

The BOJ resisted further policy changes in January. But as inflation rises, the International Monetary Fund has recommended the BOJ let government bond yields move more freely and consider raising short-term interest rates. Any such move may rock markets as Japanese investors sell overseas assets to invest back home.

BOJ under fire BOJ under fire- https://www.reuters.com/graphics/JAPAN-ECONOMY/BOJ/zjpqjeoojvx/chart.png

(Reporting by Yoruk Bahceli, Samuel Indyk, Nell Mackenzie, Dhara Ranasinghe, Alun John, Naomi Rovnick, Harry Robertson and Chiara Elisei; Graphics by Vincent Flasseur, Sumanta Sen and Pasit Kongkunakornkul and Riddhima Talwani; Editing by Paul Simao and Bernadette Baum)