LONDON (Reuters) – A big central bank exit from the extraordinary stimulus measures triggered to keep economies afloat during the COVID-19 pandemic is underway, with the United States and Australia moving away this week from strong political support.
But policymakers have also pushed back investor expectations for a series of interest rate hikes, waiting to see if inflation remains stronger than expected. The Bank of England surprised markets on Thursday by keeping rates unchanged.
Here is an overview of the position of policy makers on the path to relaunching the pandemic era.
(GRAPHIC: Central Bank Balance Sheets – https://fingfx.thomsonreuters.com/gfx/mkt/egvbkaneypq/cbanks0311.PNG)
1 / NORWAY
Norway’s central bank raised its policy rate by 25 basis points to 0.25% in September and reiterated on Thursday that it plans to tighten it again in December.
This makes Norges Bank the most aggressive of the major central banks in developed economies to curb ultra-lax policy, thus strengthening the Norwegian krone.
(GRAPHIC: Rate hike outlook strengthens Norwegian krone – https://fingfx.thomsonreuters.com/gfx/mkt/dwpkregyevm/NOK0311.png)
2 / NEW ZEALAND
Last month, the Reserve Bank of New Zealand hiked rates for the first time in seven years, to 0.5%, and markets are forecasting another 0.25% hike at its November 24 meeting.
New Zealand’s consumer price index is rising, the unemployment rate is at an all time high and policymakers are warning that the country’s scorching housing market is unsustainable.
Traders’ betting rates will exceed 2% by August 2022.
(GRAPHIC: central bank interest rate – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjorgybpr/Rates0311.PNG)
3 / CANADA
The Bank of Canada announced last week that it was ending its bond buying program given a strong economy, high COVID-19 vaccination rates and a strong job market.
He also signaled that rates could rise as early as April 2022 and said inflation would stay above target for much of next year, putting Canada firmly on the hawkish side.
(GRAPHIC: US Jobs Key To Fed Outlook – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjororkvr/Fed0411.PNG)
4 / UNITED STATES
The Federal Reserve is taking the slow lane out of politics. He said this week that he would “reduce” his monthly asset purchases of $ 120 billion to zero by mid-2022.
But he stressed that tapering does not mean that a rate hike will follow soon, as he expects the rise in inflation to be “transient.” President Jerome Powell added that the central bank would be patient and wait for more job growth before tightening.
(GRAPHIC: Markets react to BOE rate decision – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjorobkvr/GB0411.png)
5 / BRITTANY
The Bank of England dashed market expectations for an interest rate hike on Thursday, with policymakers voting 7-2 to keep rates at an all-time high of 0.1%.
But the UK central bank said it would be necessary to hike rates “over the next few months” if labor market data were in line with expectations.
After several policymakers recently gave strong signals about the need to raise rates soon to vote against one, money markets rushed Thursday to lower expectations – a first hike is now scheduled for February.
6 / AUSTRALIA
The Australian central bank remains in the conciliatory camp, but narrowly.
The Reserve Bank of Australia took an important step towards the unwinding of the pandemic stimulus on Tuesday. He ditched an ultra-low bond yield target and opened the door for a first rate hike in 2023, earlier than a previous forecast of 2024.
However, Gov. Philip Lowe pledged to be patient with the policy and rejected market talks of a hike as early as May.
7 / SWEDEN
Markets expect Sweden’s 0% rate to rise 75 basis points by the third quarter of 2024, contrary to the Riksbank’s vision for rates unchanged during this period.
He ended pandemic-era lending facilities, but says rates will only rise if there are big changes in inflationary pressures.
Inflation, at its highest for more than ten years, could exceed 3% next year, but should slow down thereafter. Bank boss Stefan Ingves considers that an inflation overrun is easier to resolve than an overrun.
8 / EURO ZONE
The European Central Bank remains accommodating. Head Christine Lagarde believes that a rate hike in 2022 is very unlikely because inflation is still too low.
With inflation at its highest for 13 years, markets are betting that the ECB will hike rates next year for the first time since 2011, but Lagarde objected.
Long-term inflationary pressures remain low, and the ECB will likely maintain its asset purchases long after the expected end of its emergency pandemic bond purchase program in March.
(GRAPHIC: Life After PEPP – https://fingfx.thomsonreuters.com/gfx/mkt/myvmnkmyjpr/PEPP0311.PNG)
9 / JAPAN
Japan is an outlier. Last week, the Bank of Japan dismissed concerns that the weaker yen is fueling inflation, which has boosted wholesale price growth to 13-year highs.
The BOJ lowered its consumer inflation forecast for the year ending March 2022 to 0% from 0.6% and cut this year’s economic growth forecast, a sign that it will maintain its rate target short-term interest rate at -0.1% for now.
(GRAPHIC: BOJ – https://fingfx.thomsonreuters.com/gfx/mkt/dwvkregzkpm/BOJ.JPG)
10 / SWITZERLAND
The Swiss National Bank is expected to lag its peers, falling by -0.75%, currently the lowest benchmark interest rate in the world.
Unlike the ECB and the Fed, the SNB has not changed its framework to introduce a higher inflation tolerance threshold. This implies that it should act if inflation accelerates above its price stability target of just under 2%.
Swiss inflation is at its highest level in two years at 0.94% and markets are anticipating a 25 basis point rate hike by the end of 2022.
The Swiss franc is trading near 11-month highs against the euro, helped by some market speculation it could tighten ahead of the ECB.
(GRAPHIC: SNB – https://fingfx.thomsonreuters.com/gfx/mkt/egpbkanoavq/SNB.JPG)
(Reporting by Tommy Wilkes, Saikat Chatterjee, Sujata Rao and Dhara Ranasinghe in London; Compiled by Dhara Ranasinghe; Editing by Catherine Evans)