Central banks rush to exit stimulus as New Zealand rises again

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LONDON, Feb 23 (Reuters) – Major central banks are now clearly in inflation-fighting mode, with New Zealand’s central bank announcing its third straight rate hike on Wednesday.

Others are also starting to raise ultra-low borrowing costs, and even the most dovish are starting to undo stimulus measures triggered to protect economies from the COVID-19 pandemic.

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

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Central bank balance sheets about to get a little smaller

1) NORWAY

Norway’s central bank cemented its position as the most aggressive rate regulator in the developed world, raising rates in December after starting to raise them in September.

Its key rate is 0.5% and Norges Bank announced a rate hike in March. Nordea expects four rate hikes this year.

The rate take-off is underway

2) NEW ZEALAND

The Reserve Bank of New Zealand has just raised its key rate by 25 basis points to 1% and expects a higher peak in the tightening cycle.

It also revealed its intention to reduce its bond holdings by NZ$50 billion ($33.82 billion) acquired under the Large Scale Asset Purchase Program (LSAP), both by through bond maturities and managed sales. Markets now see rates reaching 2.5% by the end of the year, up from the previous expectation of 2.25%. Read more

New Zealand policy rate drops to 1%

3) GREAT BRITAIN

The BoE raised rates to 0.5% earlier this month and nearly half of its policymakers wanted a bigger hike to contain endemic price pressures as Britain’s central bank warned inflation would rise above soon 7%.

The move follows a rate hike in December, marking the first back-to-back increases in the Bank Rate since 2004 and reflecting policymakers’ urgency to show they are above a growing cost-of-living crisis. .

Markets expect the BoE to raise rates again on March 17th. read more

Inflation rising in the UK

4) UNITED STATES

The Federal Reserve signaled its intention to raise rates in March and reaffirmed its intention to end its bond purchases that month in what U.S. central bank chief Jerome Powell promised would be a sustained battle to control inflation.

A crisis over Ukraine has tempered the market’s more aggressive bets on higher rates, although investors are still positioned for more than six total rate moves this year.

Nervousness over the rate hike unnerved Wall Street, while the US Treasury curve flattened, a sign that policy tightening could hurt the economy. Read more

5) CANADA

The Bank of Canada is expected to raise its historically low interest rate of 0.25% by 25 basis points at its meeting next Wednesday.

Governor Tiff Macklem said the bank was on an “upward trajectory” and Canada’s inflation rate is at 30-year highs of just above 5%.

Market prices rose 0.50% on March 2 and six increases in total this year.

6) AUSTRALIA

The Reserve Bank of Australia this month ended its bond-buying program as planned, but surprised markets by pushing back on expectations of an early rate hike. Read more

Governor Philip Lowe pleaded for patience in raising rates so the economy can attract more people into jobs, and said the outlook for inflation was uncertain and it was plausible that a rate hike is still a year away.

Wednesday’s data showed a recovery in wages, but annual growth was still below levels that policymakers said would justify a rate hike. Read more

7) EUROZONE

A hawkish pivot from the European Central Bank at its Feb. 3 meeting surprised markets, triggering rising expectations for rate hikes and a sell-off in the bond market.

ECB chief Christine Lagarde acknowledged that inflation was higher than expected and chose not to repeat her past comment that a hike this year was unlikely.

The ECB’s rate hike, however, is expected to lag peers and follow the end of a gradual reduction in bond purchases.

Record inflation puts pressure on ECB

8) SWEDEN

Sweden has ended pandemic-era lending facilities, but has only scheduled a rate hike for the end of 2024.

Swedish headline inflation eased in January after hitting a nearly 30-year high, but a surge in underlying price pressures, which rose to 2.5% in January from a year earlier , could force a reluctant central bank to accelerate policy tightening.

9) JAPAN

The Bank of Japan recently raised its inflation forecast, but is in no rush to change its ultra-accommodative policy. It has intervened in bond markets in recent weeks to contain rising borrowing costs. Read more

Still, the BOJ took tentative steps to roll back the stimulus, pledging to slow purchases of corporate bonds and commercial paper to pre-pandemic levels from April.

BOJ

10) SWITZERLAND

The Swiss National Bank remains at the dovish end of the spectrum, despite higher inflation, and believes its dovish stance is appropriate. Recently, however, it has withdrawn to the foreign exchange markets to stem the rise of the franc by mopping up the euros.

Its interventionist tactics rose with weekly deposits data, a proxy measure of intervention, posting the biggest weekly increase in a month as the central bank floundered in the currency markets to keep the franc from appreciating at the above the level of 1.04 francs per euro.

Swiss consumer price inflation reached 1.6% in January, its highest level since the end of 2008, as it approached the upper 2% range of the Swiss price stability definition. SNB.

Sight deposits in Swiss francs and SNB
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Reporting by Dhara Ranasinghe, Sujata Rao, Tommy Wilkes and Saikat Chatterjee; Editing by Angus MacSwan

Our standards: The Thomson Reuters Trust Principles.

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