(Bloomberg) – This week’s wave of interest rate hikes is unlikely to mark the end of a campaign by central banks to squash inflation even as they run a growing risk of sending their economies into recession.
From Ulaanbaatar to Washington, many policymakers raised their benchmark borrowing costs over a three-day period that made clear their main concern was the strongest wave of inflation since the 1980s.
That marks a dramatic change from a year ago when officials publicly expected pandemic-era price hikes to fade soon.
Among the biggest drivers was Sweden’s Riksbank, which surprised by raising 100 basis points, while the Federal Reserve raised its benchmark by 75 basis points for the third consecutive meeting. Indonesia was also more aggressive than expected, Vietnam made a rare move, while Switzerland ended Europe’s trial with sub-zero rates.
However, Turkey cut interest rates, Brazil and Norway indicated they might take a time out from their monetary tightening, and the Bank of Japan stood out among advanced economies by maintaining very low rates. The Japanese also intervened in the markets in an attempt to stem the yen’s decline.
“The central bank’s tightening is not over yet,” said Chua Huck Bin, an economist at Maybank Investment Banking Group in Singapore. “Inflation may have peaked with lower commodity prices, but wage cost pressures have not abated which could mean more core inflation and service inflation.”
However, the higher the rates, the higher the risk of slowing economic growth.
“Just as central banks misread the drivers of inflation in 2021, they may now underestimate the speed at which inflation can decline as their economies slow,” said Maurice Obstfeld, senior fellow at the Peterson Institute for International Economics and former president of Maurice Obstfeld. Economist at the International Monetary Fund.
Here’s a summary of the week’s resolutions and what might come next:
After raising the key rate to a range of 3% to 3.25%, Fed officials sent a more hawkish signal than previously expected by expecting a further tightening of 1.25 percentage points before the end of the year.
pay it Goldman Sachs Group Inc (NYSE:)., Bank of America Corp (NYSE:). Others on Wall Street raised their own forecasts to show another 75-point jump in November and an even higher peak in 2023.
Speaking about the potential pain in the economy, President Jerome Powell indicated that officials are increasingly willing to take a recession as the price of controlling inflation. Raising rates to 4.5% would cost about 1.7 million jobs, and 5% would mean 2 million fewer jobs, according to Bloomberg Economics.
The Bank of England raised for the second time in a row a half point in its fight to bring down inflation.
Three officials have pushed the institution to join its global peers in moving at a faster pace.
The Swiss National Bank raised interest rates by 75 basis points, raising borrowing costs above zero for the first time in nearly eight years.
Some expected a further rise, but President Thomas Jordan said “it cannot be ruled out that additional SNB policy increases will be necessary to ensure price stability in the medium term”.
After surprising economists, Sweden’s Riksbank said it would continue to increase borrowing costs in an effort to stem price hikes and protect confidence in its ability to bring inflation back to target.
The bank’s forward guidance points to a half-point increase in November, followed by a higher push in early 2023, raising the benchmark rate to 2.5%. Some believe officials will need to be tougher in November and beyond.
The central bank raised its key interest rate by half a point, but indicated that its tightening may be coming to an end as officials see the economy responding to their measures against inflation. The policy rate of 2.25% now is the highest since 2011.
The Central Bank of Brazil kept its benchmark index at 13.75% after 12 consecutive gains.
Two officials wanted to tighten again and board members wrote that they would remain vigilant about inflation and assess keeping rates steady “for long enough” to make rates a target.
Mongolia’s central bank raised interest rates to a five-year high to try to control the fastest inflation since 2017 and stem currency outflows. Governor Lakhagavasurin Biadran said that inflation should fall after the shift.
The Philippines’ central bank raised its policy rate for the fifth time this year to cool inflation pressures amid a weaker currency and a tough Fed. Bangko Sentral ng Pilipinas raised its overnight reverse repo rate by 50 basis points to 4.25%. Governor Felipe Medalla said in a recorded speech that BSP “will do what is necessary” to reach an inflation path consistent with the target.
Taiwan’s central bank raised its benchmark index by a modest amount, its third rise this year, as it tries to fight inflation without weighing down a sluggish economy. It lowered its forecast for economic growth in 2022 for the third time this year.
The central bank made a larger-than-expected increase to stem inflation and stabilize the rupee, marking a strong turnaround for policy makers who had been extreme values in monetary policy until last month. The seven-day reverse repo rate was boosted by 50 basis points, the largest increase since 2018, to 4.25%. Governor Perry Wargio said the bank will take steps to bring consumer prices back within its 2% to 4% target by the second half of 2023.
In a rare tightening move, the central bank will raise two interest rates by one percentage point each on Friday after the local currency plunged to a record low. The move came hours after Prime Minister Pham Minh Chinh asked the central bank to consider raising interest rates to support the dong.
The Bank of Japan stuck to its very low rates and Governor Haruhiko Kuroda said there is little prospect of a rate hike in the near term. To add to the drama, authorities intervened in the markets to support the yen for the first time since 1998 after its recent decline against the dollar.
Turkey’s central bank made another surprise rate cut, despite inflation rising to a 24-year high and with the lira trading at a record low.
The Monetary Policy Committee led by Governor Sahap Kavcioglu cut the benchmark to 12% from 13% on Thursday. In a statement accompanying its decision, the central bank said there was a “loss of momentum in economic activity”.
© Bloomberg LP 2022