As the world copes with the impacts of the Russian invasion of Ukraine, which has driven up the cost of energy and other commodities and further disrupted snarled global supply chains, central banks around the world are responding to record-high inflation with adjusted interest rates.
UNITED STATES
WASHINGTON – The Federal Reserve intensified its fight against the worst inflation in 40 years by raising its benchmark interest rate by a half-percentage point this week – its most aggressive move since 2000 – and signaling further large rate hikes to come.
The increase in the Fed’s key short-term rate raised it to a range of 0.75 per cent to 1 per cent, the highest point since the pandemic struck two years ago.
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Chair Jerome Powell took the unusual step of saying the central bank’s officials understood the financial pain that high inflation is causing ordinary Americans. But Powell stressed that the Fed is sharply raising rates for that very reason – to rein in high inflation, sustain the economy’s health and ease the stress that millions of households are facing.
Powell also made clear that further large rate hikes are coming. He said that additional half-point increases in the Fed’s key rate “should be on the table in the next couple of meetings” in June and July
UNITED KINGDOM
LONDON – The Bank of England raised its key interest rate to the highest level in 13 years this week.
The central bank hiked rates for the fourth time since December as U.K. inflation runs at 30-year highs. Its Monetary Policy Committee voted 6-3 to lift the rate that the Bank of England pays other banks by a quarter-percentage point, to 1 per cent.
“Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine. This has led to a material deterioration in the outlook for world and U.K. growth,” the bank said.
“The Bank of England has a difficult job ahead of it – inflationary pressures from external factors are getting higher and higher,” Dmitri Theodosiu, head of foreign exchange and interest rates trading at Investec, said in a note to investors.
INDIA
NEW DELHI – India’s central bank raised its key interest rate to 4.4 per cent from 4 per cent.
Reserve Bank of India (RBI) Governor Shaktikanta Das said the central bank would maintain an “accommodative” stance to help support the economy while keeping inflation in check.
India’s consumer price index surged to 7 per cent in March from 6.1 per cent in February, largely reflecting higher costs for imports of coal, oil and food. Das mentioned global shortages of wheat and edible oil as factors.
The RBI has set a medium-term target for CPI inflation of 4 per cent within a band of plus or minus 2 per cent, Das said.
“Looking ahead, further rate hikes look nailed on. After all, the rise in headline inflation has further to run,” Shilan Shah of Capital Economics said in a report.
SWEDEN
STOCKHOLM – Sweden’s central bank raised its key interest rate from zero to 0.25 per cent, citing the highest inflation level since the 1990s.
Riksbanken said there had been “unusually large fluctuations in inflation in Sweden” and the rise last year “was largely due to rapid increases in energy prices.” The Consumer Price Index for March was at 6.1 per cent.
“Since the turn of the year, inflation excluding energy has also risen rapidly and has been significantly higher than the Riksbank’s forecast in February,” the central bank said in a statement. “The outcomes indicate that the upturn is now broad and prices of goods and food as well as services are rising unusually quickly.”
The central bank said the rate will be raised gradually going forward and that it will be somewhat below 2 per cent in three years’ time.
AUSTRALIA
CANBERRA – Australia’s central bank lifted its benchmark interest rate for the first time in more than 11 years. The cash rate rose from 0.1 per cent to 0.35 per cent in a move potentially damaging to a government that will seek re-election on May 21.
A rise was widely expected after official data showed that Australia’s inflation rose to 5.1 per cent in the year through March. It is the highest annual rate since 2001, when a newly introduced 10-per-cent federal consumption tax created a temporary spike.
The bank’s Governor Philip Lowe said inflation had increased more than had been expected but remained lower than in most advanced economies.
“There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalizing monetary conditions,” Lowe added.
RUSSIA
MOSCOW – The head of the Russian Central Bank says the outlook is “extremely uncertain” as the country’s economy is expected to contract by up to 10 per cent this year. International sanctions and falling consumer demand are squeezing the economy as inflation rises.
The Central Bank cut its key interest rate from 17 per cent to 14 per cent and predicted the economy would shrink by between 8 per cent and 10 per cent this year.
“The current situation is extremely uncertain. Simultaneously, supply trends and the factors driving aggregate demand are also changing dramatically,” Central Bank head Elvira Nabiullina said.
The Central Bank said annual inflation was 17.6 per cent as of April 22 and forecast it would rise to between 18 per cent and 23 per cent by the end of the year.
Compiled by OBJ Staff.
