Central banks are stepping up the pace of their grand stimulus retreat | Investment News

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LONDON (Reuters) – The last major central bank meetings of 2021 are over and the dividing lines are clear: policymakers pissed off enough by high inflation to start reversing the pandemic-era stimulus now and those confident that an ultra-loose policy is always necessary.

The Bank of England on Thursday became the first major central bank to raise interest rates since the start of the COVID-19 pandemic. The US Federal Reserve has also taken a big step to end bond purchases and prepare for rate hikes, while the European Central Bank remains on the slow lane.

Here’s a look at where policymakers stand on the path to pandemic-era revival, in order of seemingly hawkish appearance:

Norway’s central bank cemented its position as the most aggressive rate regulator in the developed world, raising rates https://www.Reuters.com/markets/europe/norway-hikes-interest-rates-with-more-come -2021- 12-16 for the second time this year on Dec. 16 despite an expansion of COVID restrictions that could hurt the economic outlook.

After initiating policy tightening in September, the bank raised rates by 25 basis points to 0.5% and cut further next year, potentially taking the key rate to 1.25% by the end of the year. 2022.

New Zealand’s central bank raised rates last month for the second time this year to 0.75% and expects them to reach 2.5% by 2023.

Inflation surged and a scorching housing market fueled fears of economic overheating.

Data this week shows that the economy shrank by a record 3.7% in the third quarter wasn’t as bad as expected and with the easing of COVID-19 restrictions, the numbers n did not dampen rate hike expectations.

Bank of England shocked markets https://www.msn.com/en-ca/money/topstories/boe-becomes-first-major-central-bank-to-raise-rates-since-pandemic/ar -AARRc2R on Thursday with an 8-1 vote to raise rates, deciding to rein in inflation now, rather than waiting to see how the fast-spreading Omicron variant of COVID-19 impacts the economy.

Explaining its 15 basis point hike to 0.25%, the BoE said inflation was likely to hit 6% in April – triple its target – and more rate hikes would likely be needed.

Money markets, which had priced in a first hike in February, now expect a further 25 basis point tightening by March and two more rate hikes before the end of 2022.

The Federal Reserve took a significant hawkish turn this week https://www.Reuters.com/markets/us/fed-prepares-stiffen-inflation-response-post-transitory-world-2021-12-15.

On Wednesday, it pledged to end its pandemic bond purchases by March and set out an accelerated schedule for rate hikes.

Fed Chairman Jerome Powell predicts strong growth and full employment in 2022 and believes the central bank must treat inflation as the most pressing risk.

It is therefore not surprising that the markets are pricing in a strong probability of a rate hike in May, with a rise by June fully priced in.

Bank of Canada Governor’s Comments https://www.Reuters.com/markets/us/bank-canada-says-likely-cut-rates-effective-lower-bound-more-often-2021-12-15 Tiff Macklem this week suggests rates will soon begin to rise, given inflation at 18-year highs and a rapidly diminishing economic slowdown.

Money markets are now almost fully pricing in a 25 basis point rate hike in March. Canada’s central bank said in October it would end its bond-buying program and advanced its rate hike forecast.

The Australian central bank is in the pacifist camp, but narrowly.

Last month, the Reserve Bank of Australia took a major step towards unwinding the pandemic stimulus by abandoning an ultra-low bond yield target and opening the door to a first rate hike in 2023, sooner than a previous forecast of 2024.

This week, Governor Philip Lowe said he was ready to end bond buying as soon as February, but still thought rates were unlikely to need to rise in 2022, putting the RBA at the end of the day. tightening line.

Sweden has ended pandemic-era lending facilities, but says rates will only rise if inflationary pressures change significantly. The bank has forecast a rate hike at the end of 2024.

But this week’s data showed headline inflation at its highest level in 25 years, a pricing official said he supported the case for further cutting stimulus. Riksbank Governor Stefan Ingves https://www.Reuters.com/markets/europe/swedish-cbank-chief-says-inflation-surge-due-energy-prices-2021-12-14 attributed the spike to prices electricity.

The European Central Bank is on a very different path from most of its peers.

On Thursday, it announced it would end its €1.85 trillion pandemic emergency asset purchase program next March.

But he also pledged abundant support through his long-running asset purchase program and signaled that any exit from years of super-easy policy would be slow. The ECB has said a rate hike next year is unlikely and expects inflation, at a record 4.9%, to ease.

The Bank of Japan on Friday took tentative steps to roll back the pandemic-era stimulus, saying it would slow purchases of corporate bonds and commercial paper to pre-pandemic levels starting in April.

But the bank maintained its short-term rate target at -0.1% and that of 10-year bonds around 0%. With inflation well below its 2% target, the BOJ will likely maintain ultra-accommodative policies much longer than its peers.

The Swiss National Bank remained firm this week, saying its monetary policy, combining the world’s lowest interest rates with frequent interventions in the foreign exchange market, remained appropriate.

While the Swiss franc’s recent rally to 6½ year highs has dampened imported inflation, the SNB has intervened sporadically to control the franc’s gains. It recently launched its biggest weekly intervention since mid-May.

(Reporting by Tommy Wilkes, Saikat Chatterjee, Sujata Rao and Dhara Ranasinghe; Editing by Catherine Evans)

Copyright 2021 Thomson Reuters.

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