End in sight for global rate-hike cycle as Fed nears peak

Any pause in May could cement a turn in what has been the most aggressive global tightening cycle in decades

Most global central banks may be either close to a peak or already done with interest-rate hiking, auguring a hiatus before possible monetary loosening comes into view. With the first signs of dents in economic growth now visible, and fallout from financial-market tensions lingering, any pause by the Federal Reserve after at least one more increase in May could cement a turn in what has been the most aggressive global tightening cycle seen in decades.

The European Central Bank and regional counterparts might keep going longer and even aspire to keep restrictive settings in place, but a shift in gear for US monetary policy led by Chair Jerome Powell would be an important signal to global peers.

From Brazil to Indonesia, a pivot toward rate cuts could start as soon as this year, with many advanced-world officials not far behind. Overall, at least 20 of the 23 major jurisdictions monitored by Bloomberg are projected to be lowering borrowing costs in 2024.

The short-lived peak for global rates, according to a gauge calculated by Bloomberg Economics, will be 6% in the third quarter. By the end of next year, that measure is seen dropping to 4.9%.

As in previous cycles, Japan may stand out from the pack. Under newly installed Governor Kazuo Ueda, its rate — currently the lowest in the world — is anticipated to stay unchanged until next year, when an increase to zero is finally envisaged.

Also read | Fed needs recession to win inflation fight, study shows

Here is Bloomberg’s quarterly guide to 23 of the world’s top central banks, covering 90% of the world economy.

G7

US Federal Reserve

Current federal funds rate (upper bound): 5%

Bloomberg Economics forecast for end of 2023: 5.25%

Bloomberg Economics forecast for end of 2024: 4.25%

Fed officials look on track to keep raising rates despite recent bank strains, with higher oil prices likely hardening their resolve to hike at their meeting in early May.

While policymakers stress patience in assessing what the collapse of SVB means for the US economy, there’s not been much change in their rhetoric on the need to cool price pressures.

Officials forecast rates reaching 5.1% this year, implying another 25 basis-point increase from the Fed’s current benchmark target range of 4.75% to 5%.

That said, financial conditions have tightened following SVB’s failure and officials don’t rule out this helping to dampen the US economy, which could reduce the need for further hikes.

Investors predict rates will peak below 5%, with the Fed then cutting by roughly 50 basis points before end 2023.

European Central Bank

Current deposit rate: 3%

Bloomberg Economics forecast for end of 2023: 3.5%

Bloomberg Economics forecast for end of 2024: 2.5%

ECB officials are increasingly flagging that their most aggressive period of rate rises may be nearing its conclusion. Some likely smaller hikes remain — to tackle underlying inflation that broke another record in March and will stay elevated. But with headline price gains heading firmly back toward the 2% target, the majority of the tightening — 350 basis points since last July — is complete.

Discussions on the end of the cycle follow recent ructions within the financial sector. Some policymakers reckon lenders may rein in credit as a result of that turbulence, a step that would weigh on economic growth and inflation. In the meantime, another front in the battle with prices has begun as the ECB allows an average of €15 billion ($15.8 billion) a month to roll off its balance sheet between March and June. A larger amount may be permitted beyond that.

Also read | As banking jitterbug dies down, Federal Reserve eyes inflation woes

Bank of Japan

Current policy-rate balance: -0.1%

Bloomberg Economics forecast for end of 2023: -0.1%

Bloomberg Economics forecast for end of 2024: 0%

The Bank of Japan is now led by its first new Governor in a decade. This quarter will be key for setting the tone of Kazuo Ueda’s five-year term. So far he’s given strong hints of sticking with stimulus, but acute market focus is on if and when the veteran economics professor will make adjustments to the BOJ’s yield curve control.

That likely means every policy gathering this quarter will be live, especially after the bank hinted that any YCC change may have to come as a surprise. June is the most popular timing for a policy shift among BOJ watchers, but there is little doubt that Ueda will be under intense scrutiny at his first meeting later this month.

Bank of England

Current bank rate: 4.25%

Bloomberg Economics forecast for end of 2023: 4.25%

Bloomberg Economics forecast for end of 2024: 3.5%

An unexpected jump in UK inflation has left economists and investors divided about whether the Bank of England will continue its quickest monetary tightening in three decades. Money markets anticipate one last quarter-point interest rate increase to 4.5% is more likely than not by the middle of the year, but economists are marginally tilted against any further change.

Policymakers led by Governor Andrew Bailey have avoided giving further guidance about their next decisions, noting conflicting forces buffeting the outlook. Inflation is expected to fall sharply along with energy prices, and turmoil surrounding the rescues of Credit Suisse and Silicon Valley Bank may raise the cost of funding for banks. But at the same time, the economy is performing better than anticipated, and expectations about rises in wages and prices have lingered persistently above the 2% target.

Bank of Canada

Current overnight lending rate: 4.5%

Median economist forecast for end of 2023: 4.5%

Median economist forecast for end of 2024: 3%

The Bank of Canada announced in January that it plans to hold rates steady at 4.5%, a conditional pause that’s dependent on inflation slowing to 3% by the middle of this year, and a return to the 2% target in 2024.

Before the recent deposit turmoil, swaps traders were betting hotter-than-expected economic data and a higher terminal rate outlook for the Federal Reserve would force Governor Tiff Macklem from the sidelines to tighten borrowing costs further. Now, a 25-basis-point cut is priced in by the end of 2023.

While most economists expect the country will enter a technical recession in the middle of the year, core inflation pressures are sticky, challenging Macklem’s calculus as he balances the impact of global financial risks against an economy that was supposed to have stalled by this point.

Read | Economists expect US recession, above-target inflation this year

BRICS central banks

People’s Bank of China

Current 1-year medium-term lending rate: 2.75%

Bloomberg Economics forecast for end of 2023: 2.55%

Bloomberg Economics forecast for end of 2024: 2.45%

China’s economic recovery is picking up steam after Covid restrictions were abruptly dropped and the property market stabilizes, although the rebound is still fairly patchy and policymakers have no intention yet of scaling back monetary support. Instead of interest rates, though, the PBOC is using other policy tools, like the reserve requirement ratio — which it cut in March — to help spur lending and growth in the economy.

Governor Yi Gang, who was reappointed to his post in March, said recently that current rate levels are appropriate and the central bank won’t flood the system with stimulus. Economists expect inflation to remain fairly benign this year at just above 2%, giving officials scope to keep monetary policy relatively accommodative for now.

Reserve Bank of India

Current RBI repurchase rate: 6.5% CHECK

Bloomberg Economics forecast for end of 2023: 6.5% CHECK

Bloomberg Economics forecast for end of 2024: 5.5% CHECK

The Reserve Bank of India joins a few central banks in the region — including Indonesia, South Korea and Malaysia — in pausing its yearlong tightening cycle. On April 6, the monetary authority stood pat on interest rates to evaluate the cumulative impact of 250 basis points hike in borrowing cost so far as growth cools and new challenges emerge for the global economy.

Governor Shaktikanta Das said the disinflation process would be “gradual and protracted” for Asia’s third largest economy, but added that the monetary authority will be “ready to act appropriately” if needed and its latest decision is a “pause, not a pivot.”

Central Bank of Brazil

Current Selic target rate: 13.75%

Bloomberg Economics forecast for end of 2023: 12%

Bloomberg Economics forecast for end of 2024: 9%

Brazil’s central bank has given no indication that it’s ready to start lowering its benchmark rate from a six-year high, bucking intense political pressure for looser monetary policy. While President Luiz Inacio Lula da Silva, his economic team and many business leaders complain that borrowing costs are choking Latin America’s largest economy, central bankers insist that the cost of bringing inflation down to target would be even higher in the future if they were to waver in their fight now.

The autonomous monetary authority led Roberto Campos Neto has kept the benchmark Selic steady at 13.75% for five consecutive meetings, after increasing it from an all-time low of 2% during the pandemic. Even with inflation slowing for 10 straight months by mid-March, the central bank is still trying to cool down the services sector while battling a recent increase in inflation expectations for the next three years. A plan to shore up government finances proposed by Lula’s team could help the bank cut rates in the future, but not before it’s approved by congress.

Bank of Russia

Current key rate: 7.5%

Bloomberg Economics forecast for end of 2023: 7.5%

Bloomberg Economics forecast for end of 2024: 7.5%

The Bank of Russia is likely to keep the benchmark rate where it has been since September, at 7.5%, but reaffirm its commitment to hike if inflationary risks start to emerge. While price growth in the country is decelerating, along with inflation expectations, Governor Elvira Nabiullina is focused on an increase in fiscal spending, deteriorating terms of foreign trade and a tightening labor market, which is leading to continued growth in real wages this year.

Still, the risk and time-frame of any elevated inflationary pressures are unclear and create some uncertainty in market expectations. Although the consensus suggests the key rate will remain on hold this quarter, several banks including UBS and Goldman Sachs see a hike already in the coming months.

South African Reserve Bank

Current repo average rate: 7.75%

Median economist forecast for end of 2023: 7.25%

Median economist forecast for end of 2024: 6.75%

After surprising financial markets with a bigger-than-expected 50 basis-point hike amid persistent inflation pressures in March, the South African Reserve Bank may opt to leave its key rate unchanged at the highest level in more than a decade, or raise borrowing costs even further.

Its decision will depend on how quickly inflation that’s currently being stoked by severe power outages and logistics-network constraints will return to 4.5% - the midpoint of the target range at which it prefers to anchor price-growth expectations. The bank raised its inflation forecast for this year to 6% from 5.4%.

“The aim of policy is to anchor inflation expectations more firmly around the midpoint of the target band and to increase confidence of attaining the inflation target sustainably over time,” said Governor Lesetja Kganyago.

Mint central banks

Banco de Mexico

Current overnight rate: 11.25%

Bloomberg Economics forecast for end of 2023: 10.75%

Bloomberg Economics forecast for end of 2024: 6.75%

Banco de Mexico is nearing the end of its tightening campaign after raising the benchmark rate for 15 consecutive meetings to 11.25%. Banxico, as the central bank is known, slowed the pace of rate hikes on March 30, delivering a quarter-point increase that may well be its last.

While board members led by Victoria Rodriguez Ceja warned in their post-meeting statement that persistent price pressures could justify “additional monetary efforts,” they stressed that they’re now data dependent and uncommitted to any particular move. Inflation figures published after that decision provided some relief: consumer prices rose slightly less than expected by economists in March, although core measures slowed less than forecast.

Bank Indonesia

Current 7-day reverse repo rate: 5.75%

Bloomberg Economics forecast for end of 2023: 5.25%

Bloomberg Economics forecast for end of 2024: 4.75%

Bank Indonesia has kept its policy rate unchanged at the last two meetings, with Governor Perry Warjiyo saying the central bank has done enough to tame inflation after delivering a total of 225 basis points of increases from August to January.

While overall price gains remain above the monetary authority’s goal, they’re on course to return to the 2%-4% target band later this year. The rupiah is the top gainer against the dollar among Asia’s most-active currencies so far this year, giving the central bank additional scope to stay on a long pause as Southeast Asia’s largest and resource-rich economy posted its best performance in nine years in 2022, thanks in large part to the commodity boom.

Central Bank of Turkey

Current 1-week repo rate: 8.5%

Bloomberg Economics forecast for end of 2023: 25%

Bloomberg Economics forecast for end of 2024: 20%

Turkish monetary policy’s outlook will be guided by who wins the elections in May. The six-party opposition bloc, which includes technocrats and former economic heavyweights from President Recep Tayyip Erdogan’s AK Party, is touting a return to orthodoxy. This would most likely suggest a significant rise in borrowing costs.

Erdogan and his top aides meanwhile, continue to champion low borrowing costs despite high inflation, prioritizing economic growth through cheap loans ahead of the vote. But regardless of the election outcome, economists forecast a significant raise in the benchmark rate as of the third quarter, highlighting that the current system is unsustainable and the lira is facing mounting pressure.

Central Bank of Nigeria

Current central bank rate: 18%

Median economist forecast for end of 2023: 17.5%

Median economist forecast for end of 2024: 15%

Nigeria’s central bank is still in hiking mode, though the pace at which it raises rates may slow in the coming months. Governor Godwin Emefiele and his fellow central bankers have indicated that they plan to continue tightening, albeit moderately, until the differential between inflation at 21.9% and the policy rate at 18% is closed.

The Central Bank of Nigeria last month lifted borrowing costs to the highest level since adopting its policy rate in 2006, raising the benchmark for a sixth straight meeting. The 50 basis-point move was the smallest increase in its current tightening cycle. The March rate hike meant that the MPC has lifted the benchmark by 650 basis points since May to temper an inflation rate that’s been at more than double the top end of its 6% to 9% target for nine months.

Other G20 central banks

Bank of Korea

Current base rate: 3.5%

Median economic forecast for end of 2023: 3.5%

Median economic forecast for end of 2024: 2.5%

The Bank of Korea may stay longer in a wait-and-see mode as inflation shows signs of stabilizing at home. The Korean central bank held its benchmark rate at 3.5% in February to assess the impact of its 18-month-long tightening cycle, and expects inflation to keep slowing toward a 3% range by the end of the year.

There are other risks that will make it harder for the BOK to hike its rate when it meets on April 11. Concerns of defaults by indebted developers are rising as the property market slumps and household debt also remains elevated. The economy is struggling to rebound from a contraction in the fourth quarter of last year as exports continue to fall by double-digit figures from a year earlier.

Reserve Bank of Australia

Current cash rate target: 3.6%

Bloomberg Economics forecast for end of 2023: 3.85%

Bloomberg Economics forecast for end of 2024: 2.75%

The Reserve Bank of Australia this month paused its almost yearlong tightening cycle, having increased rates by a cumulative 3.5 percentage points.

While money markets and some economists see the current 3.6% cash rate as the peak, RBA Governor Philip Lowe pushed back against that view in a subsequent speech, saying the decision to stand pat doesn’t imply that hikes are over. He has history on his side.

Since the late 1980s, the RBA has paused between its second-last and final rate move in every tightening cycle bar one. Lowe suggested as much in his address, highlighting that Australian policymakers often stand still for a bit to see how the lag in policy plays out in the economy. So Australia may be in a hawkish hold.

Central Bank of Argentina

Current rate floor: 78%

Bloomberg Economics forecast for end of 2023: 80%

Bloomberg Economics forecast for end of 2024: 70%

Argentina’s central bank resumed tightening monetary policy in March, one month after annual inflation surpassed 100%. As prices continue to rise at an ever-faster pace, the International Monetary Fund is urging policymakers to boost rates even higher before October’s presidential elections.

The central bank is losing foreign reserves at an alarming pace as a severe drought ravages Argentina’s commodity exports. After accumulating $5 billion in reserves during all of 2022, the monetary authority has spent $5.8 billion to prop up the peso just in the first quarter of 2023, fueling longstanding fears of a sharp currency devaluation. The Fund also said “policy setbacks” made the situation worse for Argentina, although it approved a new loan disbursement as part of its $44 billion program to shore up the country’s economy.

G10 currencies and east Europe economies

Swiss National Bank

Current policy rate: 1.5%

Economist forecast for end of 2023: 1.75%

The SNB shrugged off Swiss banking turmoil last month to increase borrowing costs by another half-point, bringing the current tightening cycle — which kicked off in June — to 225 basis points.

With Swiss inflation predicted to average at 2% or higher through 2025, President Thomas Jordan suggested that another rate hike “can’t be excluded” and economists are betting to see a move at the next meeting in June.

Sveriges Riksbank

Current repo rate: 3%

Bloomberg Economics forecast for end of 2023: 3.75%

Bloomberg Economics forecast for end of 2024: 2.25%

Sweden’s central bank is poised to maintain the pace of tightening this month as inflation data has kept outpacing its projections. A record jump in food prices in February, worsened by a weaker krona, has increased the urgency for policymakers to deliver a move of at least half a point at the next meeting from 3%, and a similar hike in June.

That’s set to worsen the plight for consumers in the largest Nordic nation, which is already likely in a recession, and may prompt steeper home price fall in what’s one of the worst housing routs globally. Still, bets that the Riksbank may be pushed to return to even bigger rate hikes have been tempered by lower risk of a wage-price spiral after a longer-than-forecast pay agreement reached earlier this month.

Norges Bank

Current deposit rate: 3%

Central bank forecast for end of 2023: 3.6%

Central bank forecast for end of 2024: 3.45%

Norway’s central bank is set to deliver another quarter-point hike in May from 3% after stronger-than-expected economic activity and a potential price-wage spiral forced it to abandon plans to end tightening early this year. Even as the pace of inflation has slowed from a 35-year high, the labor and housing markets have proved more resilient to higher prices and credit costs than policymakers had expected.

Norges Bank now expects to raise the benchmark rate to about 3.5% in the summer, while Governor Ida Wolden Bache warned last month that a higher level may be warranted if the krone — the worst performer this year among the G-10 space of major currencies — will continue to trail central bank’s forecasts.

Reserve Bank of New Zealand

Current cash rate: 4.75%

Bloomberg Economics forecast for end of 2023: 5%

Bloomberg Economics forecast for end of 2024: 3.5%

The RBNZ delivered a surprise 50 basis-point hike in early April, confounding expectations that it would continue to slow the pace of tightening after a 50-point increase in February and a 75-point jump in November. Policymakers have lifted the cash rate by five percentage points to 5.25%, and economists now expect them to take it to a 5.5% peak at the next meeting in May.

New Zealand inflation remains stubbornly above 7% and the central bank appears determined to tame it. It runs the risk of over-tightening and driving the economy into a deep recession. Gross domestic product contracted in the final quarter of 2022 and many home owners are on fixed-rate mortgages that have yet to roll onto a higher cost of borrowing, meaning the full impact of the RBNZ’s hikes to date is still to be seen.

National Bank of Poland

Current cash rate: 6.75%

Bloomberg Economics forecast for end of 2023: 6.75%

Bloomberg Economics forecast for end of 2024: 5.25%

Poland’s central bank is eager to show it has wrestled back control over inflation as the cost-of-living crisis turns into a key point of contention before parliamentary elections expected in October. After a year-long campaign of rate increases, Governor Adam Glapinski has said he “personally hoped” to be able to start cutting in the fourth quarter.

While inflation began to ease from its peak of 18.4% in February, it’s still a long way away from the central bank’s 2.5% target. Glapinski expects growth in consumer prices to return into single digits in the second half of the year, paving the way for policy easing.

Czech National Bank

Current cash rate: 7%

Median economist forecast for end of 2023: 6%

Median economist forecast for end of 2024: 3.5%

The Czech central bank is counting on the highest rates since 1999 to bring inflation to single digits in the second half of this year, from 16.7% now, and expects to meet the 2% target by the middle of 2024. Policymakers sent a hawkish warning in March, saying that more tightening may come if rising salaries threaten to create a wage-price spiral.

Governor Ales Michl also sought to correct investors’ expectations about when the bank may start easing monetary policy, calling bets on summer rate cuts “premature.” Money-market prices now show wagers on borrowing costs staying stable at least until August, and then falling by a full percentage point by the end of the year.