Central bank rate hikes through Q2 20231
As of February 2, 2023
Source: Bloomberg Finance L.P. As of February 2, 2023.
Last month’s rundown
Nearly all major central banks inched closer to peak policy rates in January and early February. The Fed raised rates 25bps, marking its eighth consecutive rate hike, while the European Central Bank and Bank of England both hiked 50bps in lockstep, bringing their respective policy rates to 14-year highs. Despite relative dovishness from the Fed and the Bank and England, all three echoed that more hikes were on the horizon.
Conversely, Bank of Korea and Bank of Canada have likely reached the peak in their respective interest rate cycles,citing signs of cooling inflation and economic slow-down. For context, Bank of Korea was the first major central bank to begin hiking rates back in August 2021 while Bank of Canada has led one of the more aggressive tightening campaigns, hiking rates 425bps in nine months, on par with the Fed.
Meanwhile, Bank of Japan remains committed to ultra-easy policy despite surging inflation and currency devaluation. After the surprise hawkish revision to its yield curve control policy in December, a tactic used to pin down borrowing rates, the bank left restrictions unchanged in January. Markets are hoping for a policy pivot in Q2 when Governor Kuroda’s term comes to an end.
After a year of widespread policy coordination, 2023 is likely to see dispersion in both monetary policy and regional market cycles. As central banks that spent last year hiking rates start to take their foot off the gas, others that have been stubbornly resistant may begin tightening. One theme that remains: central bank policy will continue to dominate markets in the year ahead.