Crunch time after string of aggressive central bank rate hikes

LONDON (Reuters) – It is crunch time. Major central banks have confounded economists with a string of interest rate rises that, so far, have moderated inflation without causing global recession.

Now comes the challenge: how to pause monetary tightening without unleashing market exuberance about future rate cuts that would loosen financial conditions and revive price pressures.

The European Central Bank on Thursday raised rates by 25 basis points (bps), while the U.S. Federal Reserve next week is expected to keep borrowing costs steady, while trying hard to rein in speculation about future easing.

So far, nine developed economies have raised rates by a combined 3,915 bps in this cycle. Japan is the holdout dove. 

Here’s where central banks stand, ranked by how much they have hiked so far this cycle:


Following a string of rate rises, inflationary pressures are moderating. The unemployment rate ticked up to 3.8% in August. Consumer prices, excluding volatile food and energy items, rose 4.3%, the smallest year-on-year rise for almost two years.

Economists polled by Reuters expect the Federal Reserve to leave its benchmark rate unchanged, at 5.25% to 5.5%, at its Sept. 19-20 meeting.


The Reserve Bank of New Zealand lifted its cash rate to a 14-year high of 5.5% in May and has kept it there since. A front-runner in withdrawing pandemic era stimulus, the RBNZ has pushed out when it expects to start cutting borrowing costs to 2025.


Money markets tip the Bank of England to raise rates for the 15th consecutive meeting on Sept. 21 to 5.5% and the highest since 2007.

Despite a weakening housing market, the UK economy is still avoiding a widely predicted recession. Inflation in July was more than triple the BoE’s 2% target. Almost half of economists polled by Reuters expect the BoE to hike again in the final quarter of 2023 before pausing.


Bank of Canada Governor Tiff Macklem said on Sept. 7 that monetary policy may not be tight enough to return to target.

His hawkish remarks came a day after the Bank of Canada kept its key rate at 5%, but said it could hike again should price pressures persist. Inflation has remained above the bank’s 2% target for 27 months.


The ECB raised its key rate to 4%, the highest level since the euro currency was launched in 1999, but it signalled this could be its final move in a more-than year-long fight against stubbornly high inflation.

It also raised its forecasts for inflation, which it now expects to come down more slowly towards its 2% target over the next two years, while cutting its expectations for economic growth.


The Norges Bank has said it will likely nudge benchmark borrowing costs higher this month following a 25 bp rise in August to 4%.

Data released after the Norge’s Bank’s last meeting showed core inflation unexpectedly declined to 6.3% in August, however, reducing pressure on monetary policymakers to stay hawkish after their Sept. 21 meeting.


The Reserve Bank of Australia kept rates steady at 4.1% for a third consecutive meeting in September, the last under former Governor Philip Lowe.

Lowe’s successor, Michele Bullock, is expected to strike a similar tone on Oct. 3. Markets are wagering that rate hikes are over after the RBA forecast consumer price inflation, at 4.9% in July, would return to target in late 2025.


Traders reckon the Riksbank is likely to raise rates by 25 basis points to 4% on Sept. 20, with the almost 7% slump in the Swedish crown against the euro this year at the front of policymakers’ minds.

The Swedish government expects GDP to contract 0.8% in 2023 while the Riskbank sees house prices falling 15% to 20% from their February 2022 peak. But inflation, at 4.7% in August, remains too high for comfort.


Swiss inflation held steady at 1.6% in August, firmly within the Swiss National Bank’s target range.

According to pricing in derivatives markets, traders think there’s a roughly 60% chance the SNB keeps rates on hold at 1.75% on Sept. 21.


The Bank of Japan, the world’s most dovish major central bank, meets next week.

Japanese policy makers emphasise that rate rises remain a long way off. Still, the future of the BOJ’s policy of controlling government bond yields remains a focus, particularly as it has contributed to yen weakness. The yen has slumped roughly 10% against the dollar this year.

The BOJ shook markets in July by making this yield curve control policy more flexible.

(Reporting by Naomi Rovnick, Harry Robertson, Samuel Indyk, Nell Mackenzie, Alun John, Yoruk Bahceli and Chiara Elisei; Graphics by Vincent Flasseur, Sumanta Sen and Pasit Kongkunakornkul and Riddhima Talwani; Compiled by Naomi Rovnick and Chiara Elisei; Editing by Dhara Ranasinghe and Sharon Singleton)