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just last week, US Federal Reserve announced its biggest interest rate hike in nearly 30 years, followed by its fifth consecutive hike by bank of england And for the first time in 15 years in Switzerland.
“It was the first week. It was the craziest in my experience,” said Frederic Ducrozet, chief economist at Pictet Wealth Management.
The move caused a stir in stock markets as investors fear that while rate hikes are needed, they could put the brakes on economic growth by becoming too aggressive if monetary policy is tightened.
“The recession is accelerating as central banks race to raise rates dramatically before inflation gets out of control,” said Craig Erlam, an analyst at online trading platform OANDA.
Capital Economics, a research group, said it did not anticipate a recession in the United States.
“But the Fed is intentionally reducing demand to ease price pressure. It is a hard line to walk and there is clearly a risk that it goes too far and the economy slides into recession, Said in a note.
Emerging countries can become collateral victims of rate hikes. when the dollar rises US Fed raises its rates.
“A stronger dollar will complicate (debt repayments) of deficit countries, which often borrow in that currency,” Ducrozet said.
– Swiss surprise – Central banks insisted last year that inflation was only “temporary” as prices were driven up by disruptions in supply chains after governments emerged from lockdowns.
But Russia’s invasion of Ukraine has spurred energy and food prices, spurring inflation and prompting economists to downplay the world’s growth prospects for this year.
This leaves the central banks with no other option but to go ahead with the plan more aggressively.
Australia’s central bank raised higher-than-expected rates earlier this month, while Brazil raised its benchmark rate for the 11th time in a row last week. Further increases are occurring in the United States and Europe.
But it is the Swiss national bank that dealt the biggest blow on Thursday when it announced a 0.5 percentage point increase for the first time since 2007.
The SNB focused on preventing the Swiss franc from becoming too strong so far.
Michael Hewson, chief market analyst at CMC Markets UK, said: “SNB’s actions are notable in that they mark a significant change in policy (far from a very low position).
European Central Bank Has been slow to act compared to his peers. It is ending its massive bond-buying plan and will finally raise rates next month for the first time in a decade.
The eurozone faces another problem: the yields paid by its governments to borrow money have increased, with indebted countries such as Italy being charged a premium compared to Germany, which is a safe bet for investors. Is.
The “spread” revived memories of the eurozone’s debt crisis, prompting the ECB to hold an emergency meeting on Thursday, after which it said it would devise a tool to prevent further tensions in the bond market.
The Bank of Japan reversed the global trend on Friday as it stuck to its decision not to raise its rate, sending the yen near its lowest level against the dollar since 1998.
But the Bank of Japan may also adjust its policy, said Stephen Innes, managing partner at SPI Asset Management.
“BoJ members are considering public dissatisfaction with inflation and the rapid depreciation of the yen,” Ines said.
“While they plan to maintain the current easing policy, they may make some changes to support the currency,” he said.
– No immediate solution – Consumers have to be patient before seeing the impact of price hike on prices.
ECB chief Christine Lagarde announced plans for a rate hike next month, stating bluntly: “Do we expect the interest rate hike in July to have an immediate impact on inflation? The answer is no.”
Central banks do not have control over some of the problems that are driving inflation, such as rising energy and food prices, and supply chain disruptions.
Energy and food prices contributed 4.1 percentage points to a 7.9 percent increase in consumer prices in major advanced economies over the past year, Capital Economics said.
It expects oil, gas and agricultural commodity prices to start falling later this year, leading to a sharp moderation in inflation, but core inflation to remain high.
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