Bank of Canada delivers first 100 pointer among developed economies

The Bank of Canada has delivered the first 100-basis-point (bps) rate increase among the world’s advanced economies in the current policy-tightening cycle as officials there eyeballed “higher and more persistent” inflation.

In delivering their largest rate increase since 1998, BOC policymakers also noted on Wednesday the increased risk of price increases becoming entrenched. The increase leapfrogs the Fed’s 75 bps increase in June for the largest since central banks began responding to inflation in force earlier in 2022.

The BOC was not the only G10 central bank in action on Wednesday, with the Reserve Bank of New Zealand hiking by 50 basis points.

Here’s a look at where policymakers stand in the race to contain inflation.

The US

The Federal Reserve vaulted to the top hawk spot on June 15, raising the target federal funds rate by three quarters of a percentage point to a 1.5%-1.75% range.

It acted days after data showed 8.6% annual US inflation. An even hotter inflation reading on Wednesday of 9.1% year-on-year triggered a market frenzy over potentially even more aggressive responses in the coming months.

The Fed is also reducing its $9-trillion stash of assets accumulated during the pandemic.

New Zealand

The Reserve Bank of New Zealand delivered its sixth straight rate rise on Wednesday, lifting the official cash rate by 50 bps to 2.5%, a level not seen since March 2016.

It remains comfortable with its planned aggressive tightening path to restrain runaway inflation.

Barclays said that after a 50 bps rise in August, the balance of risk would shift towards 25 bps increments, reflecting increasingly evident signs of moderation in domestic growth.

Canada

The Bank of Canada defied market expectations for a Fed-matching 75 basis points increase and said more hikes would be needed.

The move lifted the BOC's policy rate to 2.5% — the highest since 2008 — from 1.5%.

The jumbo hike, which sent Canada's dollar higher, was designed to “front-load the path to higher interest rates,” the bank said.

Britain

The Bank of England (BoE) raised interest rates by 25 bps on June 16, its fifth rate rise since December, taking rates to 1.25% — the highest since January 2009.

Given that it sees UK inflation heading above 11%, it might well have to fulfil its promise to act “forcefully” if needed.

Norway 

Norway, the first big developed economy to kick off a rate-hiking cycle last year, raised rates by 50 bps on June 23 to 1.25%, its largest single hike since 2002.

The Norges Bank plans to raise rates by 25 bps at each of its four remaining policy meetings in 2022, though larger increments are also possible, governor Ida Wolden Bache said.

Australia 

With the economy recovering smartly and inflation at a 20-year high of 5.1%, the Reserve Bank of Australia (RBA) raised rates by a surprise 50 bps on June 6. It was the RBA’s second straight move after insisting for months policy tightening was way off. Money markets price in another 50 bps rise in July.

Sweden

Another latecomer to the inflation battle, Sweden’s Riksbank delivered a half percentage point interest rate hike on June 30 to 0.75%. The move was Sweden’s biggest in more than 20 years.

As recently as February, the Riksbank had forecast unchanged policy until 2024, but governor Stefan Ingves now expects rates to hit 2% in early-2023 and said 75 bps moves are possible.

Eurozone

With eurozone inflation hitting 8.6% in June, the European Central Bank (ECB) will raise interest rates by 25 bps on July 21 for the first time since 2011 and again in September . The bank is also accelerating work on a tool to contain bond market fragmentation within the bloc. From July 1 it will also use proceeds from maturing German, French and Dutch bonds to buy debt from weaker markets such as Italy.

Switzerland

On June 16, the Swiss National Bank (SNB) unexpectedly raised its -0.75% interest rate, the world’s lowest, by 50 bps, sending the franc soaring.

Recent franc weakness has contributed to driving Swiss inflation towards 14-year highs and SNB governor Thomas Jordan said he no longer sees the franc as highly valued. That has opened the door to bets on more rate hikes; a 100 bps move is now priced for September.

Japan

That leaves the Japan as the holdout dove.

On June 18, it maintained ultra-low interest rates and vowed to defend its cap on bond yields with unlimited bond-buying. It holds 10-year yields in a 0%-0.25% range.

BoJ boss Haruhiko Kuroda stressed commitment to maintaining stimulus though, in a nod to yen weakness, Kuroda called its rapid decline to 24-year lows “undesirable” as it heightened uncertainty.

Hedge funds, meanwhile, are betting it can’t maintain huge bond-buying forever. The BoJ may also face political pressure, given inflation may exceed the 2% target for the second straight month and elections loom in July.

Reuters