If a year ago the central banks of the world’s leading economies had taken a clear course towards tightening monetary policy, which practically meant raising interest rates, now things look completely different, writes BTA.
Succeeding to a greater or lesser extent in taming the record inflation of the past decades caused by the consequences of the coronavirus pandemic and the war in Ukraine, central banks are now increasingly indicating that the current cycle of interest rate increases is rather going towards its end.
The first of the leading central banks to start raising its key interest rates was Britain, which took a similar step as early as 2021. At its last meeting on Thursday, September 21, it was the first to announce that it was keeping interest rates on hold, as thus a fifteenth consecutive increase did not occur.
Last week, the European Central Bank increased its interest rates for the tenth time in a row to a record level, but signaled that it is more likely to keep them unchanged at its next meetings. After ten consecutive hikes, the ECB’s key interest rates hit their highest level since the creation of the eurozone.
The Federal Reserve did the opposite, leaving interest rates unchanged for the second time this year, keeping them at a 22-year high, but signaling that another rate hike may be possible before the end of the year.
The risks of an increase in inflation, and hence of new “tightening” interventions by central banks, remain, with the biggest one emerging at the moment from the new surge in oil, after Saudi Arabia and Russia announced that they would reduce supplies. and US shale oil production is at an unsatisfactory pace.
The US Federal Reserve Board (FRA) – no change
At its meeting on Wednesday, the UFR announced that it is keeping its key interest rate (Federal Funds Rate, the target interest rate at which commercial banks in the US grant and receive overnight loans and deposits – note) in the range of 5.25-5.50 the percentage.
In addition to one more hike by the end of this year, the Fed’s forecasts include two rate cuts next year. In June, the Federal Reserve predicted four rate cuts in 2024.
In a news conference after the rate decision was announced, Fed President Jerome Powell said that while price pressures are showing some encouraging signs of easing, the return of inflation to the 2 percent target is far from over.
U.S. inflation rose for a second month in a row in August to 3.7 percent, or 0.5 percentage points above July’s level
The Eurozone – an increase of 0.25 percentage points
The central bank of the eurozone countries on September 14 announced that it is raising its main interest rates by 0.25 percentage points, the tenth time in a row (with a different step – ed.), after starting its campaign to tighten monetary policy in June 2022
Thus, the interest rate on the main refinancing operations – the interest rate at which commercial banks can borrow funds from the ECB for a period of one week – rose to 4.5 percent. The interest rate on the deposit facility (which banks receive for depositing funds overnight with the ECB) became 4.00 percent, and the rate on the marginal lending facility (which banks pay when they borrow overnight funds from the ECB with collateral) reached 4.75 per hundred.
ECB President Christine Lagarde announced at a press conference that “the Governing Council of the European Central Bank considers that the main interest rates of the ECB have reached levels which, maintained for a sufficiently long period of time, will contribute significantly to the return of inflation to the desired level of 2 percent”. She then clarified that the decision was not made easily, as instead of unanimity it was made by majority.
Lagarde told reporters that this did not necessarily mean interest rates would remain at their current levels, and added that future decisions by the governing council would ensure the ECB’s key interest rates are set sufficiently restrictive for as long as necessary.
This week, Eurostat announced that inflation in the Eurozone continued to decline in August to 5.2 percent after 5.3 percent in July, which was the fourth consecutive decrease in the indicator.
“Bank of England” (Bank of England), Great Britain – no change
The British central bank – “Bank of England” (Bank of England) on Thursday left its main interest rates unchanged after its meeting, ending the streak of 14 consecutive rate hikes. Thus, the main interest rate of the “Bank of England” remained at a 15-year maximum of 5.25 percent.
This came after the country’s statistics office on Wednesday announced a surprise drop in inflation in August to 6.7 percent on an annual basis from 6.8 percent in July.
The Swiss National Bank – no change
The Swiss National Bank (SNB) announced on Thursday that it is leaving its main interest rate unchanged – at the level of 1.75 percent, set at the meeting in June and July (the SNB makes its regular quarterly interest rate decisions – note line ). Thus, for the first time since March 2022, the SNB did not increase the rate level. Since then, interest rates have risen by 2.5 percentage points, according to a reference on the institution’s website.
In August, inflation in the country remained at its July level of 1.6 percent on an annual basis.
Reserve Bank of Australia – no change
The Australian central bank (Reserve Bank of Australia – RBA) kept its main interest rates unchanged for the third month in a row at its September meeting, which was held at the beginning of the month. The institution indicated that some further tightening of monetary policy may be needed to contain inflation, which was at 4.9 percent in July, or well above the bank’s target of between 2 and 3 percent. hundred. Analysts commented at the time that the current cycle of monetary policy tightening, which has seen key interest rates rise by 400 basis points (4 percentage points), may be over.
Still, inflation in the decision-making reference month of July was 4.9 percent, or well above the bank’s target of between 2 and 3 percent.
Sweden and Norway – increase
Sweden’s central bank on Thursday (September 21) raised its key interest rate for the eighth consecutive month by 0.25 percentage points to 4 percent amid the country’s continued efforts to fight inflation.
Sweden’s core inflation, which excludes energy costs, slowed more than expected in August, reaching 7.2 percent, according to statistics office data cited by CBS. This is down from the annual rate of 8 percent recorded in July.
Norway’s central bank earlier in the week raised its key interest rate by 25 basis points to 4.25 percent, which was in line with analysts’ expectations. However, the institution signaled that rates may be revised upwards at the next meeting, which was not in line with forecasts.
Japan – no change
The Bank of Japan (Bank of Japan) continued its ultra-low interest rate policy, leaving key rates unchanged after the bank’s two-day monetary policy meeting, which ended on Friday, September 22. This comes despite some indications of a rate hike given by recently elected governor Kazuo Ueda.
The interest rate on short-term loans remains negative, at the level of minus 0.1 percent, and the interest rate on long-term loans remains zero.
The Central Bank of Turkey
After Turkey’s Central Bank cut interest rates or left them unchanged amid high double-digit inflation, in June the country’s president, Recep Tayyip Erdogan, appointed a new governor in the form of Hafiz Gaye Erkan. Yesterday, under her leadership, the institution once again increased the main interest rate – from 25 to 30 percent. When Erkan took office, he set interest rates at 8.5 percent.
However, the country’s currency has depreciated by about 30 percent against the dollar in the past three months, with inflation rising from 38.2 percent in July to 58.94 percent in September.