World’s central banks have once again entered race to raise rates
2023.02.04 03:07
World’s central banks have once again entered race to raise rates
By Kristina Sobol
Budrigannews.com – The pace of major central bank interest rate moves will pick up again in February with policymakers in the United States, Britain, and the euro zone already out of the starting blocks. Major moves in interest rates were off to a tepid start in January with only one hike by Canada.
Only three meetings were held in January by central banks that control the 10 currencies that are traded the most. Canada raised interest rates by 25 basis points, while Norway and Japan stayed the same.
However, the first days of February demonstrated that monetary tightening was not yet complete, with the U.S. Federal Reserve raising interest rates by 25 basis points and the European Central Bank and the Bank of England each increasing rates by 50 basis points.
All of this occurs after 2022, the year in which central banks waged an all-out effort to contain inflation by raising interest rates at the fastest rate and on the largest scale in at least two decades.
In a blog post published on Thursday, Tobias Adrian from the International Monetary Fund stated, “Central banks aggressively hiked interest rates last year as inflation in many countries rose to the highest levels in decades.”
“At the moment, falling energy prices are lowering headline inflation and encouraging optimism that monetary policy may be eased later this year.”
In January, six out of 18 central banks in emerging markets issued increases totaling 225 bps. Benchmarks were raised by Indonesia, Korea, South Africa, Thailand, Israel, and Colombia.
In comparison, five central banks raised interest rates by 260 basis points in December.
According to Simon Quijano-Evans, chief economist of Gemcorp Capital Management Limited, pressure on central banks in developing economies should lessen as year-over-year inflation readings fall further, the prospect of Fed rate hikes and the U.S. dollar cooling off, and deflation in energy and food prices beginning in the first half of the year.
He continued:
“Non-U.S. dollar central banks, including the majority in emerging markets, should become happier as we move through 2023.”
