UK Truss continues his ‘controversial’ economic plan, says it’s the right track

Central banks launched 350 basis points for further rate increases in the fight against inflation

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LONDON (Reuters) – Major central banks intensified their fight against hyperinflation and unleashed another 350 basis points of gains in a pivotal week in which policymakers are determined to show their trade intentions.

The Federal Reserve raised US interest rates by three-quarters of a percentage point for the third time in a row on Wednesday, while British, Swiss and Norwegian central banks made big hikes on Thursday.

Central banks in the top 10 advanced economies have raised combined interest rates by 1,965 basis points in this cycle so far, with Japan “dove” the hold, and on Thursday committed to its ultra-low interest rate policy.

Here’s a look at where policymakers stand in the race to contain inflation, from hawkish to dovish.

Graphic: Central banks ramp up their fight against inflation https://graphics.reuters.com/GLOBAL-CENTRALBANKS/klvykaanlvg/chart.png

1) United States

The Federal Reserve raised interest rates by 75 basis points on Wednesday, jumping to a two-decade high. Federal Reserve Chairman Jerome Powell indicated that there are more increases ahead and warned that there is no painless way to contain inflation.

The Fed’s new forecast showed its policy rate rising to 4.4% by the end of the year, before peaking at 4.6% in 2023. No interest rate cut is expected until 2024.

Graphic: Fed delivers another big raise https://graphics.reuters.com/USA-FED/zgpomogezpd/chart.png

2) Canada

Money markets are betting that the Bank of Canada will raise the interest rate by 50 basis points in October to 3.75%. A Bank of Canada official said on Tuesday that the Bank of Canada will do whatever is needed to bring rate increases back to target.

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On September 7, the Bank of Canada raised the interest rate to 3.25%, the highest level in 14 years. Canada was the first among the world’s advanced economies in the current policy tightening cycle to offer a 100 basis point average.

Graphic: Canada steps up again to tame inflation https://graphics.reuters.com/CANADA-CENBANK/lbpgnkbxnvq/chart.png

3) New Zealand

The Reserve Bank of New Zealand last month made its seventh straight increase – and its fourth straight 50 basis point rise – to raise interest rates to 3%, the highest level since September 2015.

The Reserve Bank of New Zealand has taken a hawkish tone and sees rates at 4% by early 2023, versus a previous forecast of 3.7%. This means at least one 50 basis point rate increase in upcoming meetings.

Graphic: New Zealand monetary policy https://graphics.reuters.com/NEWZEALAND-CENBANK/gdvzyxdzepw/chart.png

4) Britain

The Bank of England raised interest rates by 50 basis points on Thursday, lower than the 75 basis points that some in the market had expected. The Bank of England also forecast a peak in inflation just below 11%, down from the previous forecast of 13.3%.

But the prospect of double-digit inflation, and the need for the Bank of England to tighten monetary policy as a new government eases fiscal policy, prompted investors to raise their expectations for a rate hike. Thursday’s money markets were in peak prices at around 4.9% by June 2023.

Graphic: The Bank of England under pressure https://graphics.reuters.com/BRITAIN-BOE/zgvomooybvd/chart.png

5) Norway

Norway, the first major advanced economy to begin a rate-raising cycle last year, on Thursday raised its benchmark rate by 50 basis points to 2.25%. But the central bank said future increases would be more “gradual”, weakening the coronary currency.

Chart: Continuous Rise https://graphics.reuters.com/NORWAY-ECONOMY/RATES/lbvgnkkbwpq/chart.png

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6) Australia

The Reserve Bank of Australia rose another 50 basis points earlier in September, for the fifth consecutive month. But the central bank dropped a reference to its “normalization” policy, stating that interest rates are now closer to neutral, while there is more work to be done when this is flagged.

The Reserve Bank of Australia has made 225 basis points of gains since May, taking its key rate to a seven-year high of 2.35%.

GRAPHIC: The Reserve Bank of Australia looks back to its inflation target https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/myvmnzgjepr/chart.png

7) Sweden

Sweden raised interest rates on Tuesday by one percentage point larger than expected to 1.75% and warned of more to come over the next six months as it deals with rising inflation.

The rate hike was the largest since the inflation target was adopted in 1993, equaling the full percentage point increase in November 1992 during Sweden’s domestic financial crisis when the key rate hit 500% for a short period.

Graphic: Riksbank rises to curb rising inflation https://graphics.reuters.com/GLOBAL-CENTRALBANKS/jnpwemdampw/chart.png

8) Eurozone

The ECB has been late to the hiking game but is catching up quickly.

Earlier in September, the euro zone central bank raised interest rates by a record 0.75%, bringing the deposit rate to 0.75% and the key refinancing rate to 1.25%, the highest since 2011.

The European Central Bank said the policy of “front loading” is to control inflation, implying that the interest rate hike could continue into early 2023 even as the bloc prepares for a recession.

This prompted traders to ramp up their bets on a series of big gains. Money markets are now pricing around 70 basis points of gains in October and December. They see rates peaking at more than 2.8% in mid-2023, compared to 2.2% before the meeting.

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Graphic: European Central Bank monetary policy https://graphics.reuters.com/GLOBAL-CENTRALBANKS/gkvlgnlyxpb/chart.png

9) Switzerland

The Swiss National Bank (SNB) raised the interest rate on Thursday by another 75 basis points from minus 0.25% to 0.5% as expected, putting an end to the negative rate experience in Europe.

The bank, which raised the interest rate for the second time in this cycle, raised its inflation forecasts for 2022 and 2023 to 3% and 2.4% respectively, adding that it could not rule out that further rate hikes were needed to control inflation.

Graphic: The Swiss Central Bank is emerging from the era of negative rates https://graphics.reuters.com/GLOBAL-CENTRALBANKS/zdpxommayvx/chart.png

10) Japan

Japan is the only doves left in politics, and the Bank of Japan on Thursday kept interest rates extremely low and policy guidance.

He assured the markets that they will continue to swim against the global tide of monetary tightening. But the Japanese authorities also intervened to support the weak yen, which was hurt by the difference in policy between Japan and the United States.

Graphic: Bank of Japan leaves interest rates unchanged https://graphics.reuters.com/GLOBAL-CENTRALBANKS/zjvqkrrdmvx/chart.png

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