Although price increases have slowed in several countries, the war on inflation is far from being over. In this context, the question of how long global central banks will continue to hike rates is becoming increasingly relevant. There are indications that inflation may have started to moderate, which may cause major central banks to consider relaxing their tightening policies.
On Thursday, the Bank of England, which is largely an exception due to the persistence of British inflation, raised its benchmark rate by half a percentage point. This increase was higher than expected and up 25 basis points.
During this current tightening cycle, nine developed countries have collectively increased their interest rates by a total of 3,740 basis points so far. The Bank of Japan is the sole exception to this rule because it continues to adhere to its ultra-easy monetary policy.
Market players are currently anticipating another rate hike from the Federal Reserve of the United States along with two rounds of rate hikes from the European Central Bank. Particularly intriguing are the potential actions of the world's major central banks.
Interest rates in New Zealand reached a 14-year high of 5.5 percent in May after a hike by the Reserve Bank of New Zealand. Its prediction that interest rates will remain stable at their current level also caught markets off guard. Since the already-implemented hikes have started having the expected effect on inflation, this is a strong indicator that the bank's tightening cycle is coming to an end. As the economy tightened, the Reserve Bank of New Zealand raised interest rates more than any other major economy.
On June 14, the Federal Reserve of the United States decided to maintain the key funds' rate at a range of 5%-5.25%, putting a stop to the most aggressive rate hike since the 1980s. Despite this, it did not provide any indication that she is prepared to ease up on the monetary policy tightening.
Chairman of the Federal Reserve Board of Governors Jerome Powell has stated that the Fed might use the time between rate hikes to collect more data. There will be two additional rate increases of 25 basis points this year, according to FOMC members. The Federal Reserve reports that the economy of the United States is performing better than anticipated, and inflation is falling at a slower rate than expected.
On Thursday, interest rates in England were hiked by 50 basis points, to a total of 5%. This is the largest increase since February and the greatest level since 2008. The governor of the Bank of England mentioned that despite the economy's outperformance, inflation remains high and steps need to be made to lower it.
On June 7, the Bank of Canada increased borrowing costs to 4.75%, a 22-year high. The bank is currently evaluating how these new measures will affect the economy. Canada's retail sales surged in April and look set to keep going strong in May, which bodes well for the country's economy and could lead to future interest rate hikes.
On June 6, the Reserve Bank of Australia increased its benchmark rate by a quarter point, bringing it to 4.1 percent, an 11-year high. The central bank has indicated that the CPI remains elevated, suggesting the need for additional monetary policy tightening. About a one-third possibility of another rate hike in July is what the markets are predicting.
The European Central Bank (ECB) hiked its deposit rate by 25 basis points to 3.5% last week, bringing it to its highest level in 22 years. The ECB forecasted inflationary pressure of over 2% through 2025 and hinted at a rate hike.
Unlike other central banks, Kazuo Ueda, the new governor of the Bank of Japan, has maintained the institution's dovish stance.
The forthcoming meeting on July 27-28 is widely anticipated to maintain the Bank of Japan's ultra-loose monetary policy. The Bank of Japan may warn that inflation is outpacing expectations, but this is not likely to result in an immediate hike in interest rates.
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