The game is afoot: central banks ramp up inflation fight

div classBodysc17zpet90 cdBBJodivpLONDON Reuters – Central banks are racing to get on top of surging inflation, with New Zealand and Canada delivering aggressive halfpoint rate hikes this week and the ECB on Thursday sticking with plans to dial back stimulus this year. p

pBut policymakers must also, while watching inflation, guard against the fallout from the war in Ukraine. The hit to consumer confidence from higher energy prices and disrupted supply chains might well darken the economic outlook, constraining monetary tightening.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pHere is a look at where policymakers stand on the path out of the pandemicera stimulus, ranked in terms of hawkishness.p

pGraphic: The rate hiking cycle is off – https:fingfx.thomsonreuters.comgfxmktakvezjbkwprrates1404.PNGp

p1 NORWAYp

pThe Norges Bank hiked rates by 25 basis points to 0.75 on March 24 and announced plans to hike at a faster pace than previously planned. p

pIncluding the March move, the bank now plans eight hikes to bring rates to 2.50 by end2023, three more than projected in March, and two more than anticipated in March by a Reuters poll. p

p2 NEW ZEALAND p

pThe Reserve Bank of New Zealand on Wednesday reinforced its position as one of the worlds most hawkish central banks. p

pIt raised the cash rate by 50 bps to 1.5, the biggest rise in two decades and the fourth hike in the current cycle, and maintained its forecast for rates to peak around 3.35 by end2023.p

pGraphic: RBNZ gets aggressive – https:fingfx.thomsonreuters.comgfxmktbyvrjbgrjveRBNZ.PNG p

p3 CANADA p

pHaving kicked off its raterise cycle in March, the Bank of Canada raised key rates on Wednesday by 50 bps to 1, its biggest single move in more than two decades.p

pFrom next week, the BoC will also let maturing bonds roll off its balance sheet. BoC Governor Tiff Macklem reckons rates are still far below neutral levels, estimated between 23. Markets expect rates will hit 2.5 by yearend.p

pGraphic: Canada most certainly in the hawkish camp – https:fingfx.thomsonreuters.comgfxmktznpneqwrqvlCANADA.PNG p

p4 BRITAINp

pWith inflation at a 30year high, the Bank of England is under pressure to tighten policy further after three hikes since December. p

pMarkets are all but certain it will raise its benchmark by 25 bps to 1 on May 5, and then to 22.25 by end2022. p

pHowever, with soaring energy prices threatening growth, the BoE has softened its language on the need for further tightening. p

pGraphic: UK inflation hits 30year high of 7 – https:fingfx.thomsonreuters.comgfxmktdwvkrqxakpmUKINFLATION.PNG p

p5 UNITED STATES p

pThe Federal Reserve raised rates by a quarter point in March to a 0.250.5 range and has flagged a halfpoint move on May 4. It is also discussing trimming its asset portfolio.p

pInflation, which hit a 40year high at 8.5, may be starting to peak, but is expected to remain above the Feds 2 target at least through 2023. p

pGraphic: Central Bank balance sheets set to shrink – https:fingfx.thomsonreuters.comgfxmktgdvzyjxqopwCABNKS1.PNG p

p6 AUSTRALIA p

pMarkets campaign to get the Reserve Bank of Australia to pivot hawkish succeeded on April 5, when it finally opened the door for its 0.1 cash rate to rise this year.p

pData later this month is expected to show annual inflation at 3.2, while a survey published on April 12 showed robust business conditions with the jobless rate possibly dropping below 4 this year for the first time since the 1970s. p

pFutures price a 25 bps hike in June and imply a cumulative 200 bps of tightening by yearend. p

p7 EURO ZONE p

pThe European Central Bank is among the most cautious of major central banks. On Thursday, it stuck to plans to slowly unwind extraordinary stimulus, weighing worries over recordhigh inflation against the risk that the war in Ukraine could drive the euro zone economy into recession.p

pEconomists still expect the ECB to hike rates later this year and markets price around 60 bps of tightening by yearend.p

pGraphic: Euro zone inflation at record highs – https:fingfx.thomsonreuters.comgfxmktzjpqkdreapxEZinflation.PNGp

p8 SWEDEN p

pSwedens 6.1 inflation, the highest since 1991, may leave the dovish Riksbank no choice but turn into a hawk.p

pThe bank will have to rethink its policy approach at its next meeting on April 28, deputy governor Martin Floden said last week. Governor Stefan Ingves, whose vote in February was the decider in keeping balance sheet plans unchanged this year, has made similar comments recently.p

pCurrent Riksbank guidance still sees a 2024 hike markets see rates rising from zero to 1 by November.. p

p9 SWITZERLANDp

pThe Swiss National Bank remains in the dovish camp but with 2022 inflation projected at an abovetarget 2.1, it is paying closer attention to prices.p

pFlight to safety sparked by the Ukraine conflict has forced the SNB to step up currency intervention, boostin Swiss sight deposits by 8 billion Swiss francs 8.58 billion in the past three weeks. p

pGraphic: SNB deposits – https:fingfx.thomsonreuters.comgfxmktgkplgqnxkvbSNB20deposits.JPG p

p10JAPANp

pThe Bank of Japan remains the holdout dove. p

pGovernor Haruhiko Kuroda has warned the recent inflation spike, driven by import costs, could hurt the economy, stressing the BOJs resolve to keep monetary policy ultraloose.p

pWith policy tightening a long way off, traders have ramped up bets on a weaker yen, driving it to twodecade lows against the dollar and eliciting a rare warning from its finance minister. p

pGraphic: BOJ balance sheet – https:fingfx.thomsonreuters.comgfxmktjnpwekmwmpwBOJ20balance20sheet.JPG p

p1 0.9329 Swiss francsp

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pp Reporting by Sujata Rao, Saikat Chatterjee, Yoruk Bahceli and Dhara Ranasinghe Editing by Tomasz Janowskip

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