Major central banks rekindle rate hike push after dry January

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January saw just three meetings from the central banks that oversee the 10 most heavily traded currencies with Canada posting a 25 basis point increase while Norway and Japan remained unchanged.

However, the first days of February showed that the central banks were not yet fully finished with monetary tightening, with the US Federal Reserve increasing 25 bps and the European Central Bank and the Bank of England each one rises by 50 bps.

All this comes after 2022, the year central banks raised interest rates at the fastest and largest pace in at least two decades in their all-out battle to curb inflation.

Developed market interest rates:

“Central banks aggressively raised interest rates last year as inflation in many countries rose to the highest levels in decades,” said Tobias Adrian at the Monetary Fund International in a blog on Thursday.

“Now, falling energy prices are dampening core inflation and fueling optimism that monetary policy could be eased later this year.”

In emerging markets, six of 18 central banks delivered a total of 225 bps of hikes in January. Indonesia, Korea, South Africa, Thailand, Israel and Colombia all cleared the benchmarks.

January’s movements compare with five central banks increasing by 260 bps in December.

Emerging market interest rates:

With year-over-year inflation readings easing further, the prospect of Fed rate hikes and a calming US dollar as well as energy and food price deflation seen in – the first half of the year, the pressure should decrease on the central banks in the developing economies, Simon Quijano-Evans, chief economist Gemcorp Capital Management Limited, said.

“As we move into 2023, non-US dollar central banks including most in emerging markets should become happier,” he added.

(Reporting by Karin Strohecker and Vincent Flasseur; Editing by Andrew Heavens)

By Karin Strohecker and Vincent Flasseur

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