- The BoE and Fed have indicated rate hikes and taper early next year.
- The RBA has already truncated its bond buying programme.
- Inflation is pushing central banks to adopt hawkish policy.
Inflation is running hot and it may drive central banks to bring forward the time of interest rate hikes to as early as 2022 – at least that is what the consensus emerging among analysts.
In the recent monetary policy meetings, most central banks across the globe have adopted a hawkish tone, in the face of rising inflation. The actions by the US Federal Reserve, the Bank of England and the Reserve Bank of Australia – all indicate the same.
The Bank of England (BOE) said the case for higher interest rates "appeared to have strengthened" on Thursday after it nudged up its forecast for inflation at the end of the year to over 4%, more than twice its target rate.
While the BOE kept its ultra-loose monetary policy settings in place as analysts and officials shifted their tone on the outlook, Deputy Governor Dave Ramsden joined Michael Saunders in pushing to end bond purchases as soon as possible.
“Some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain,” the Monetary Policy Committee of BoE said in a statement, batting for a hike in rates.
Across the Atlantic, in the US, the Federal Reserve announced that officials may taper bond buying soon.
The Fed, in its monetary policy statement earlier this week, said that the central bank would begin reducing its asset purchases very soon and may even conclude tapering by mid-2022. A hike in policy rates, though, won’t be until 2023, the so-called dot plot, used by the Fed to signal its outlook for the path of interest rates, indicates.
This statement by Fed comes a month after Federal Reserve chair Jerome Powell indicated a sooner-than-later taper at Jackson Hole symposium.
Meanwhile, in Australia, the central bank – Reserve Bank of Australia – will go ahead with its plans to begin reducing its bond buying stimulus to AU$4 billion a week despite COVID-19 lockdowns hitting the economy. The central bank has delayed considering any further tapering until next year.