Aurelia Butler

The Bank of England, an outlier in some ways given the persistence of British inflation, on Thursday raised its benchmark rate by a bigger-than-expected half a percentage point.Traders expect one more hike from the U.S. Federal Reserve and two more from the European Central Bank. To date, nine developed economies have raised rates by a combined 3,740 basis points (bps) in this cycle. Japan is the holdout dove. Here’s a look at where central banks stand, ranked in terms of how much they have hiked rates so far this cycle.      1) NEW ZEALANDThe Reserve Bank of New Zealand raised its cash rate to a 14-year high of 5.5% in May. It also surprised markets by forecasting rates would not move above this level, a strong signal its tightening cycle was ending as the hikes it has already delivered began to have the desired effect on inflation.Still, the RBNZ has hiked rates the most among major economies in this tightening cycle.2) UNITED STATESThe Fed paused its most aggressive series of rate hikes since the 1980s on June 14, keeping its main funds rate at 5%-5.25%, but strongly resisted confirming that monetary tightening will end.The pause allows policymakers time to gather information before determining whether rates need to rise again, Fed Chair Jerome Powell said.But officials also projected two more 25-bp hikes this year. The U.S. economy has held up better than the Fed expected, while inflation has declined more slowly than forecast.3) BRITAIN The Bank of England raised interest rates by 50 bps to 5% on Thursday, their highest since 2008 and the largest increase since February, after it said there had been “significant” news suggesting British inflation would take longer to fall.”The economy is doing better than expected, but inflation is still too high and we’ve got to deal with it,” BoE Governor Andrew Bailey said. “If we don’t raise rates now, it could be worse later,” he added.4) CANADAThe Bank of Canada hiked its overnight interest rate to a 22-year high of 4.75% on June 7, having kept borrowing costs steady since January to assess the impact of tightening so far.Canadian retail sales grew much more than expected in April and will likely post another gain in May, data showed on Wednesday, bolstering the chances of another hike next month. 5) AUSTRALIAAustralia’s central bank raised its benchmark rate by a quarter-point on June 6 to an 11-year high of 4.1%.The RBA said inflation was still too high and said further tightening might be warranted to ensure price pressures return to target. Markets price in around a one-in-three chance of another hike in July.6) EURO ZONEThe ECB on Thursday raised its deposit rate by 25 bps to 3.5%, the highest level in 22 years.It expects inflation to stay above its 2% target through 2025 and hinted at more rate hikes ahead.ECB President Christine Lagarde noted that “economic growth is likely to remain weak in the short run but strengthen during the course of the year as inflation comes down.”7) NORWAY The Norges Bank raised rates more than expected by 50 bps to a 15-year high of 3.75% on Thursday and aimed for further hikes.It had hiked by 25 bps at its previous two meetings, but came under pressure to do more as core inflation jumped unexpectedly to a record 6.7% in May.The worst performer among G10 currencies, the Norwegian crown is down 7% against the dollar this year, adding to inflationary pressures.8) SWEDENRiksbank officials look set to hike rates again by 25 bps to 3.75% at their June 28 meeting.Swedish inflation has cooled to 6.7%, below the Riksbank’s expectations, but still uncomfortably above its 2% target.The central bank is in a tricky spot, with Sweden’s property market suffering from higher rates.9) SWITZERLAND The Swiss National Bank raised its policy interest rate by 25 bps to 1.75% on Thursday as the central bank pressed ahead to dampen stubborn inflation and left the door open for more tightening.Even with the Thursday’s rate increase, the SNB forecasts Swiss inflation would remain above its 0-2% target by 2026.Swiss inflation slowed in May to 2.2% from 2.6% in April.10) JAPANThe Bank of Japan remains the world’s most dovish major central bank under new Governor Kazuo Ueda.It is expected to keep policy ultra-loose at its upcoming meeting on July 27-28. While the BOJ may signal that inflation is overshooting its forecasts, it is very unlikely this would trigger a sudden rate hike.Ueda on Wednesday reiterated the central bank’s dovish stance to maintain its ultra-loose monetary policy. More

WASHINGTON (Reuters) – The head of the Federal Deposit Insurance Corporation said Thursday that bank regulators are considering applying an upcoming set of stricter capital rules to banks with over $100 billion in assets.FDIC Chairman Martin Gruenberg said the spring turmoil in the banking sector showed firms of that size pose a risk to the financial system and merit stricter oversight. He said agencies will propose new capital rules to implement an international bank rule agreement in the near future, but will likely not complete the rules before the middle of 2024. More

ISTANBUL (Reuters) -Turkey’s central bank hiked its key rate by 650 basis points to 15% on Thursday and said it would go further in a reversal of President Tayyip Erdogan’s policy, although the post-election tightening missed expectations and the lira fell. In its first meeting under new Governor Hafize Gaye Erkan, the bank changed course after years of monetary easing in which the one-week repo rate had dropped to 8.5% from 19% in 2021 despite soaring inflation. Analysts said the move suggested Erkan might have limited room to aggressively tackle inflation under Erdogan’s watch. The median estimate in a Reuters poll was for rates to rise to 21%.Thirty minutes after the hike – Turkey’s first since early 2021 – the lira suddenly began to tumble, touching an all-time low beyond 24.60 versus the dollar.The central bank’s policy committee said the tightening “will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved”.Striking a more hawkish tone than a month earlier, it said it raised rates “in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior.”Annual inflation was just below 40% in May after touching a 24-year high above 85% in October last year. The central bank said inflation will come under further pressure.It added it will gradually “simplify and improve the existing micro- and macroprudential framework” to improve market mechanisms and stability – suggesting some of the dozens of regulations adopted since late 2021 could be rolled back, freeing up credit, forex and debt markets. LIMITED ROOM FOR MANOEUVREA senior Turkish official said the rate hike was designed in part to avoid excessive market volatility and shows a determination to tighten policy, adding that such strong steps will continue in the future. Erdogan had urged rate cuts over the last two years which sparked a late-2021 currency crisis and stoked prices. The lira lost 44% in 2021 and 30% last year, despite the central bank’s efforts to counter forex demand by using its forex reserves. After his election victory last month, Erdogan signalled he was ready to backtrack on economic policy in appointing Mehmet Simsek, who is highly regarded by markets, as finance minister and Erkan, a former Wall Street banker, as central bank chief. Erdogan said last week he approved the steps Simsek would take, suggesting he had given the green light to rate hikes. The policy decision could indicate that “Erkan has limited room for manoeuvre in restoring orthodoxy in monetary policy,” said Piotr Matys, senior FX analyst at InTouch Capital Markets.”One could argue that it will take time to restore shattered confidence, but it would be more efficient to exceed expectations if Governor Erkan wants to convince investors that she is in charge of monetary policy and not President Erdogan,” he added. Most economists in the Reuters poll expected further rate hikes this year, with the year-end forecast median at 30%. The central bank’s key rate remains below deposit rates that reach up to 40% and real rates are still deeply negative.The bank’s net reserves fell to a record low of negative $5.7 billion last month before rebounding as Ankara loosened its grip on the forex market this month. The lira has shed 23% so far this year. Turkey’s credit default swaps (CDS), the cost of insuring exposure to its debt, rose 21 basis points to 518 basis points after the smaller-than-expected rate hike. Some analysts expressed doubt about Erdogan’s commitment to abandoning his unorthodoxy, citing examples of his previous shifts to orthodox policy only to quickly change his mind.Authorities hope foreign investors and hard currency will return after a years-long exodus, potentially reducing the central bank’s need to intervene to keep the lira stable. More

Zambia’s President Hakainde Hichilema has arrived in Paris as the southern African nation’s creditors, including China, close in on a deal to restructure its debts after years of delays.Hichilema said on Wednesday that he would stand alongside his French counterpart Emmanuel Macron and Chinese premier Li Qiang at a global finance and climate summit starting on Thursday — a signal that Zambia’s leader expected an agreement “in the next few days”.Africa’s second-biggest copper producer has been left in financial limbo since its 2020 default. It has been unable to continue accessing a $1.3bn IMF bailout, as China, the country’s biggest creditor, and other lenders have clashed over proposals to reduce the value of around $13bn of external debts by roughly half.The Zambian impasse has come to symbolise a broader rift between China and western countries over the basic tenets of resolving sovereign debt crises from Sri Lanka to Ghana after Beijing rapidly emerged as the biggest single-country lender to the developing world in the past decade. The conclusion of a Zambian debt deal in Paris would raise hopes for other countries in talks to restructure Chinese debts, and mark a coup for Macron’s ambitious effort to unlock climate and other financing for some of the world’s poorest countries during the two-day summit.China has been reluctant to accept direct writedowns of foreign loans by its banks, and in Zambia’s case it proposed that multilateral development lenders such as the World Bank take the unprecedented step of joining the restructuring. Other creditors have defended an established rule that these institutions avoid losses so they can continue lending at low rates.A banker close to the negotiations said an agreement among official creditors would be “real progress”, although full restructuring of Zambia’s external debt would still require agreement among private creditors, such as holders of the country’s $3bn eurobonds.A debt investor involved in the talks said development banks were likely to provide concessional lending rather than debt writedowns as a way of unlocking an agreement.Out of concerns for domestic financial stability, Zambia has excluded its local currency bonds from the restructuring, even foreign holdings of this debt. Some creditors say the latter should be included. Others have said that current targets to enable debt relief, such as a ratio of debt to exports, are too pessimistic.The investor said foreign buyers of Zambia’s domestic public debt appeared to have reduced their holdings from $3.2bn to less than $2bn since the end of last year, on fears that domestic borrowing could be included in the restructuring, as in Ghana and Sri Lanka.The finance ministry said last October that servicing those holdings would absorb about 80 per cent of the money available to repay external debts. A steep reduction in foreign holdings of domestic debt would free more money for other creditors including China, opening the door to a deal, the investor said.A credible deal to overcome disagreements on the scope of debt relief would also allow the IMF to resume disbursing funds to Zambia under the bailout, such as an $188mn payment that was held up earlier this year.“For China, the endgame seems to be a resolution that limits its financial losses while spreading more broadly the blame for the distressing and untenable situation that many highly indebted economies find themselves in,” said Eswar Prasad, professor of economics at Cornell University. More

The Bank of England’s larger-than-expected rise in interest rates provided only a fleeting boost to sterling on Thursday as investors bet that the aggressive action from the central bank is likely to help push the UK into a recession later this year. Sterling briefly jumped following the BoE decision to lift borrowing costs to 5 per cent from 4.5 per cent previously. But the gains faded fast, with the currency trading 0.1 per cent lower against the dollar at $1.2758, below the level seen before the rate announcement. Two-year UK government bond yields, which are sensitive to short-term interest rates, fell slightly to 5.03 per cent from 5.06 per cent.Although the moves were relatively small, investors said markets were focusing on the growth-sapping effect of rate rises, upending the typical correlation between higher borrowing costs and a stronger currency. Further sterling weakness, which drives up the cost of imported goods, could be a headache for the BoE in its struggle to curb inflation.

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“The market is implying that this hike will kill growth, and reduce inflation, and I think the market is right,” said Mike Riddell, a bond portfolio manager at Allianz Global Investors.The rate rise comes after the latest evidence of stubbornly high price rises. UK inflation remained stuck at 8.7 per cent in May, according to data published on Wednesday, higher than the 8.4 per cent expected.Core inflation, which strips out volatile food and energy prices, rose again in May to 7.1 per cent from 6.8 per cent the previous month, the highest rate since March 1992. That data had driven the pound lower earlier this week, ending a three-week period of gains against the dollar, despite traders betting that BoE rates will climb as high as 6 per cent by the end of the year.“The idea that we can just take the heat out of the labour market without a recession has not happened historically in the UK,” said Tomasz Wieladek, chief European economist at T Rowe Price. “Everyone has really underestimated the inflation impact coming to the UK economy — it’s possible that the BoE hikes to 6 per cent but sterling still depreciates,” he added.Ahead of Thursday’s decision, the BoE had been expected to increase rates by 0.25 percentage points, but markets had been pricing in a 45 per cent chance it would move to 5 per cent ahead of the meeting. Jordan Rochester a foreign exchange strategist at Nomura, said the rate increase “could lower the odds of more hikes needed later this year”, weakening sterling. More