Nordic central banks join the 50-bps rate hike club
Norway and Sweden have joined the ranks of central banks opting for 50 basis-point interest rate rises, delivering their biggest policy tightening moves in two decades.
June saw the U.S. Federal Reserve upping rates by 75 basis points and the Swiss National Bank surprised with a half-point hike. That means the Bank of Japan is the only major developed world central bank still chanting the inflation-is-transitory mantra.
Here's a look at where policymakers stand in the race to contain inflation.
UNITED STATES: The Federal Reserve vaulted to the top-hawk spot on June 15, raising the target federal funds rate by three-quarters of a percentage point to a 1.5 per cent-1.75 per cent range.
It acted days after data showed 8.6per cent annual U.S. inflation, triggering a market frenzy over potentially even more aggressive responses in the coming months.
The Fed is also reducing its $9 trillion stash of assets accumulated during the pandemic.
NEW ZEALAND: The Reserve Bank of New Zealand raised its official cash rate by 50 basis points (bps) to 2 per cent on May 25, a level not seen since 2016. That was its fifth straight rate hike.
It projected rates to double to 4 per cent over the coming year and stay there until 2024. New Zealand inflation reached a three-decade high of 6.9 per cent in the year to Q1, versus a 1-3 per cent target.
CANADA: The Bank of Canada delivered a second consecutive 50 bps rate increase to 1.5 per cent on June 1, and said it would "act more forcefully" if needed.
With April inflation at 6.8 per cent, Governor Tiff Macklem has not ruled out a 75 bps or larger increase and says rates could go above the 2 per cent-3 per cent neutral range for a period.
Deputy BoC governor Paul Beaudry has warned of "galloping" inflation and markets price an unprecedented third consecutive 50 bps increase in July.
BRITAIN: The Bank of England (BoE) raised interest rates by 25 bps on June 16, its fifth rate rise since December, taking rates to 1.25 per cent -- the highest since January 2009.
Given that it sees UK inflation heading above 11 per cent, it might well have to fulfil its promise to act "forcefully" if needed.
NORWAY: Norway, the first big developed economy to kick off a rate-hiking cycle last year, raised rates by 50 bps on June 23 to 1.25 per cent, its largest single hike since 2002.
The Norges Bank plans to raise rates by 25 bps at each of its four remaining policy meetings in 2022, although larger increments are also possible, Governor Ida Wolden Bache said.
AUSTRALIA: With the economy recovering smartly and inflation at a 20-year high of 5.1 per cent, the Reserve Bank of Australia (RBA) raised rates by a surprise 50 bps on June 6. It was the RBA's second straight move after insisting for months that policy tightening was way off.
Money markets price in another 50 bps rise in July.
SWEDEN: Another late-comer to the inflation battle, Sweden's Riksbank delivered a half percentage point interest rate hike on June 30 to 0.75 per cent.
The move was Sweden's biggest in more than 20 years.
As recently as February, the Riksbank had forecast unchanged policy until 2024, but governor Stefan Ingves now expects rates to hit 2 per cent in early 2023 and said 75 bps moves are possible.
EUROZONE: With euro zone inflation hitting 8.6 per cent in June, the European Central Bank (ECB) will raise interest rates by 25 bps on July 21 for the first time since 2011 and again in September. The bank is also accelerating work on a tool to contain bond market fragmentation within the bloc. From July 1 it will also use proceeds from maturing German, French and Dutch bonds to buy debt from weaker markets such as Italy.
SWITZERLAND: On June 16, the Swiss National Bank (SNB) unexpectedly raised its -0.75 per cent interest rate, the world's lowest, by 50 bps, sending the franc soaring.
Recent franc weakness has contributed to driving Swiss inflation towards 14-year highs and SNB governor Thomas Jordan said he no longer sees the franc as highly valued. That has opened the door to bets on more rate hikes; a 100-bps move is now priced for September.
JAPAN: That leaves Japan as the holdout dove.
On June 18, it maintained ultra-low interest rates and vowed to defend its cap on bond yields with unlimited bond-buying. It holds 10-year yields in a 0 per cent-0.25 per cent range.
BoJ boss Haruhiko Kuroda stressed commitment to maintaining stimulus though, in a nod to yen weakness, Kuroda called its rapid decline to 24-year lows "undesirable" as it heightened uncertainty.
Hedge funds, meanwhile, are betting it can't maintain huge bond-buying forever. The BoJ may also face political pressure, given inflation may exceed the 2 per cent target for the second straight month and elections loom in July.