More G10 central banks raised interest rates in June than in any month in at least 20 years, according to a Archyde.com calculation, and with inflation still at multi-decade highs, the pace of policy tightening is unlikely in the second half of the year. may slow down.
The central bank, which oversees seven of the 10 most actively traded currencies, raised rates by a combined 350 basis points last month, nearly half of the 775 basis points policymakers have raised so far this year.
The U.S. Federal Reserve raised interest rates 3 yards (75 basis points) last month to a range of 1.5%-1.75%, the largest single rate hike since 1994, while Switzerland raised borrowing costs by 2 yards (50 basis points). 1 basis points), in line with the rate hikes in Australia, Sweden, Norway and Canada, which shocked the market.
The Reserve Bank of Australia announced today (5th) that it would raise interest rates by 2 yards (50 basis points), and promised to continue to tighten monetary policy to curb accelerated inflation. , the highest since May 2019.
In addition, the European Central Bank (ECB) will raise interest rates for the first time since 2011 this month; the market expects the Fed to raise interest rates by another 3 yards (75 basis points) at its meeting on July 26-27.
Alex Brazier, deputy director of the BlackRock Investment Institute, said: “The Fed seems to be raising rates to 3.5% without a second thought, and the ECB also intends to raise rates to normal levels. However, the Fed’s 3.5% rate will cause a serious slowdown in the economy. So after that, the Fed will have to change course.”
Emerging markets move fast to raise interest rates but may face interest rate fatigue
On the other hand, it is most difficult for developing countries to strike a balance between avoiding a hard landing of economic growth and controlling inflation, which is now in the double digits in many countries. But emerging economies have mostly acted swiftly in fighting inflation, raising interest rates long before developed countries.
However, a rush to raise interest rates by central banks could also pose risks. “With inflation failing to peak in the first half of the year as expected, ‘hiking fatigue’ could start to manifest,” warned Luis Oganes, head of global macro research at JPMorgan.
The question then for the central bank, Oganes said, is how many rate hikes it can raise in the second half of the year to stabilize inflation back to expectations without pushing the economy into recession.
In May of this year, inflation caused by the conflict between Russia and Ukraine was significantly longer than expected, with 12 central banks in 18 large developing economies raising interest rates, and another 8 in June. Emerging market central banks have raised rates by a total of 4,415 basis points so far this year, compared with 2,745 basis points for all of 2021, the calculations show.
Manik Narain, head of emerging markets at UBS, said the irony is that even if monetary policy is tightened earlier and more strongly in emerging markets, if food prices continue to rise, inflation may not fall as fast as in developed countries. “
In this regard, Narain emphasized that the biggest problem emerging markets may face is the trade-off between economic growth and inflation.