Resilient growth and persistent inflation have pressured central banks into prolonging their hiking cycles. After ‘skipping’ on an interest rate rise in February and March, the Reserve Bank of Australia has surprised markets for the second time on the hawkish side when it delivered an additional policy rate rise of 0.25%, taking the key policy rate to 4.10%.
Then the Bank of Canada, which had suggested in January that its tightening of policy rates was over, reversed course by increasing the policy rate to 4.75%, saying tighter monetary policy was necessary to bring inflation down.
Members of the US Federal Reserve’s Federal Open Market Committee (FOMC) now appear to think another two rate hikes are coming this year, if their latest summary of economic projections is a guide.
Finally, in the eurozone, wIth expectations of more persistent upside pressures on inflation stemming from strong wage growth, the European Central Bank raised its key lending rate to 3.50% recently and declared another hike of 0.25% in July was ‘very probable’.
Inflationary pressures are proving sticky across many economies, obliging central banks to push monetary policy further into restrictive territory. Inflation is just not falling fast enough, leading markets to abandon hopes of rate cuts in 2023.
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