Fed leads central banks on massive interest rate hiking spree 

Central bankers, who have been at odds with a surge in the cost of living for months, are having a very busy week with interest rate decisions underway.

United States, United Kingdom, Japan, Switzerland, Norway, Brazil, Philippines, and Indonesia policy decisions on interest rates are due.

Except for Japan, most central banks are anticipated to tighten monetary policy.

Let’s take a look at what the week has in store from the monetary policy angle:

US rate liftoff to continue

First, the Federal Reserve might increase its benchmark interest rates by 75 to 100 basis points. 

In addition to the size of the rate increase, the rate of quantitative tightening, the dot plot of economic and rate projections, and Fed Chair Jerome Powell’s speech would all be widely followed. The futures market predicts the terminal rate to be 4.5%.

The price growth rate is higher due to the post-pandemic monetary and fiscal easing and the Russia-Ukraine war, which has driven up commodity prices and strained global supply chains, even if inflation appears to have peaked in several major economies.

The United Kingdom to follow

Following the passing of Queen Elizabeth II, the UK will have a busy week for both monetary and fiscal policies.

While the Bank of England is anticipated to increase the policy rate by 50 basis points on Thursday, the over $100 billion energy support package and the £30 billion tax cuts in the mini-budget from the new UK chancellor Kwasi Kwarteng could provide a fiscal boost.

The curious case of Japan and its dovish interest rate policy

Japan, the exception in terms of monetary policy, has experienced inflation. Even so, its inflation rate in August was only 3% yearly. 

The Bank of Japan won’t tighten the policy, but it will get harder to defend its ultra-accommodative monetary policy.

Although inflation is not anticipated to stay above its 2 percent objective for very long, the central bank will not raise policy rates or alter its yield curve control policy any soon.

India to follow suit next week

Following this week’s central bank decisions, the rate-setting panel of the Reserve Bank of India will convene while inflation remains uncomfortably high.

On September 28, the Monetary Policy Committee will begin a three-day meeting. 

Rate-setters will probably decide on the precise amount of the hike to be implemented. 

Like the past two policies, some economists anticipate a 35-basis-point increase in the key policy rate while others anticipate a 50-basis-point increase. 

Source: Moneycontrol