A host of central banks from across the world raised interest rates again on Thursday, following the U.S. Federal Reserve in a global fight against inflation that is sending shockwaves through financial markets and the economy, according to Reuters.
Japan, the outlier among major developed economies, kept interest rates steady on Thursday only to be punished as traders pushed the yen to a record low against the dollar – prompting the first intervention by Japanese authorities to support the currency since 1998.
The Fed set the pace on Wednesday with a 0.75% rate hike, its fifth increase since March, and a half dozen central banks from Indonesia to Norway followed suit with rises of similar or identical size within hours, often issuing guidance pointing to more action to come.
They are fighting inflation rates ranging from Switzerland’s 3.5% to nearly 10% in Britain – the result of a rebound in demand since the pandemic subsided accompanied by sluggish supply, especially from China, and rising prices for fuel and other commodities in the wake of Russia’s invasion of Ukraine.
Central bankers were adamant that curbing runaway price growth was their main task at present but they were bracing for their actions to take a toll on the economy, as rising borrowing costs typically dampen investment, hiring and consumption.
“We have got to get inflation behind us,” Federal Reserve Chair Jerome Powell told reporters after Fed policymakers unanimously agreed to raise the central bank’s benchmark overnight interest rate to a range of 3.00%-3.25%. “I wish there were a painless way to do that. There isn’t.”
The Fed said it expected the economy to slow to a crawl and unemployment to rise to a degree historically associated with a recession – a prospect looming ever larger in the euro zone too and seen as highly likely in Britain.
The Bank of England raised rates and said it would continue to respond forcefully, as necessary to inflation, despite the economy entering recession.
World stocks fell close to a two-year low and emerging market currencies plummeted as investors prepared for a world where growth is scarce and credit harder to get.
Market participants have also pushed up their rate expectations for the European Central Bank, which is all but certain to hike again on October 23. It is now seen taking its own interest rate to almost 3% next year from 0.75% now.
Turkey’s central bank continued with its unorthodox policy on Thursday by delivering another surprise interest rate cut despite inflation running at more than 80%, sending the lira to an all-time low against the dollar.