(Reuters) – The Bank of Canada on Wednesday delivered the first 100-basis-point rate increase among the world’s advanced economies in the current policy-tightening cycle as officials there eyeballed “higher and more persistent” inflation.
In delivering their largest rate increase since 1998, BOC policymakers also noted the increased risk of price increases becoming entrenched. The increase leapfrogs the Fed’s 75 basis points increase last month for the largest since central banks began responding to inflation in force earlier this year.
The BOC was not the only G10 central bank in action on Wednesday, with the Reserve Bank of New Zealand hiking by 50 basis points.
GRAPHIC: Hiking interest rates https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrbaorpm/Pasted%20image%201657729191897.png
Here’s a look at where policymakers stand in the race to contain inflation.
1) UNITED STATES
The Federal Reserve vaulted to the top-hawk spot on June 15, raising the target federal funds rate by three quarters of a percentage point to a 1.5%-1.75% range.
It acted days after data showed 8.6% annual U.S. inflation. An even hotter inflation reading on Wednesday of 9.1% year-over-year triggered a market frenzy over potentially even more aggressive responses in the coming months.
The Fed is also reducing its $9 trillion stash of assets accumulated during the pandemic.
GRAPHIC: Central bank balance sheets https://fingfx.thomsonreuters.com/gfx/mkt/egpbkxmrzvq/Pasted%20image%201657728329641.png
2) NEW ZEALAND
The Reserve Bank of New Zealand delivered its sixth straight rate rise on Wednesday, lifting the official cash rate by 50 basis points to 2.5%, a level not seen since March 2016.
It remains comfortable with its planned aggressive tightening path to restrain runaway inflation.
Barclays said that after a 50-bps-rise in August, the balance of risk would shift towards 25-bps increments, reflecting increasingly evident signs of moderation in domestic growth.
GRAPHIC: Reserve Bank of New Zealand gets aggressive https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwzlddpo/Pasted%20image%201657727974842.png
The Bank of Canada defied market expectations for a Fed-matching 75 basis points increase and said more hikes would be needed.
The move lifted the BOC’s policy rate to 2.5% – the highest since 2008 – from 1.5%.
The jumbo hike, which sent Canada’s dollar higher, was designed to “front-load the path to higher interest rates,” the bank said.
GRAPHIC: Bank of Canada outdoes the Fed https://fingfx.thomsonreuters.com/gfx/mkt/gkplgyxrlvb/Pasted%20image%201657730086495.png
The Bank of England (BoE) raised interest rates by 25 bps on June 16, its fifth rate rise since December, taking rates to 1.25% — the highest since January 2009.
Given that it sees UK inflation heading above 11%, it might well have to fulfil its promise to act “forcefully” if needed.
GRAPHIC: Bank of England https://fingfx.thomsonreuters.com/gfx/mkt/xmvjowwmgpr/Pasted%20image%201656693651133.png
Norway, the first big developed economy to kick off a rate-hiking cycle last year, raised rates by 50 bps on June 23 to 1.25%, its largest single hike since 2002.
The Norges Bank plans to raise rates by 25 bps at each of its four remaining policy meetings in 2022, although larger increments are also possible, Governor Ida Wolden Bache said.
With the economy recovering smartly and inflation at a 20-year high of 5.1%, the Reserve Bank of Australia (RBA) raised rates by a surprise 50 bps on June 6. It was the RBA’s second straight move after insisting for months policy tightening was way off.
Money markets price in another 50 bps rise in July.
Another late-comer to the inflation battle, Sweden’s Riksbank delivered a half percentage point interest rate hike on June 30 to 0.75%.
The move was Sweden’s biggest in more than 20 years.
As recently as February, the Riksbank had forecast unchanged policy until 2024, but governor Stefan Ingves now expects rates to hit 2% in early-2023 and said 75 bps moves are possible.
8) EURO ZONE
With euro zone inflation hitting 8.6% in June, the European Central Bank (ECB) will raise interest rates by 25 bps on July 21 for the first time since 2011 and again in September.
The bank is also accelerating work on a tool to contain bond market fragmentation within the bloc. From July 1 it will also use proceeds from maturing German, French and Dutch bonds to buy debt from weaker markets such as Italy.
GRAPHIC: ECB’s priority https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkzexjpx/Pasted%20image%201657729497051.png
On June 16, the Swiss National Bank (SNB) unexpectedly raised its -0.75% interest rate, the world’s lowest, by 50 bps, sending the franc soaring.
Recent franc weakness has contributed to driving Swiss inflation towards 14-year highs and SNB governor Thomas Jordan said he no longer sees the franc as highly valued. That has opened the door to bets on more rate hikes; a 100 bps move is now priced for September.
That leaves the Japan as the holdout dove.
On June 18, it maintained ultra-low interest rates and vowed to defend its cap on bond yields with unlimited bond-buying. It holds 10-year yields in a 0%-0.25% range.
BoJ boss Haruhiko Kuroda stressed commitment to maintaining stimulus though, in a nod to yen weakness, Kuroda called its rapid decline to 24-year lows “undesirable” as it heightened uncertainty.
Hedge funds, meanwhile, are betting it can’t maintain huge bond-buying forever. The BoJ may also face political pressure, given inflation may exceed the 2% target for the second straight month and elections loom in July.
GRAPHIC: Bank of Japan last one standing https://fingfx.thomsonreuters.com/gfx/mkt/klvykrzggvg/Pasted%20image%201655441669556.png
(Reporting by Sujata Rao, Dhara Ranasinghe and Yoruk Bahceli; Additional reporting by Tommy Wilkes and Saikat Chatterjee; Editing by Mark Potter and Andrew Heavens)