Zürcher Nachrichten - Central banks walk inflation-recession tightrope

EUR -
AED 3.77821
AFN 75.090387
ALL 98.182709
AMD 409.487744
ANG 1.853566
AOA 940.680458
ARS 1070.564367
AUD 1.653789
AWG 1.854109
AZN 1.749565
BAM 1.95269
BBD 2.076613
BDT 125.22181
BGN 1.954833
BHD 0.387652
BIF 3009.777147
BMD 1.028632
BND 1.406474
BOB 7.106683
BRL 6.216744
BSD 1.028472
BTN 88.885456
BWP 14.434943
BYN 3.365773
BYR 20161.18663
BZD 2.06593
CAD 1.475094
CDF 2916.171527
CHF 0.939453
CLF 0.037503
CLP 1034.947991
CNY 7.541004
CNH 7.559334
COP 4415.86562
CRC 516.782082
CUC 1.028632
CUP 27.258747
CVE 110.473317
CZK 25.230391
DJF 182.808411
DKK 7.46015
DOP 63.464969
DZD 139.76949
EGP 51.875249
ERN 15.42948
ETB 129.917339
FJD 2.39167
FKP 0.847168
GBP 0.842228
GEL 2.921366
GGP 0.847168
GHS 15.275182
GIP 0.847168
GMD 74.06188
GNF 8903.838003
GTQ 7.939434
GYD 215.077503
HKD 8.010826
HNL 26.20991
HRK 7.590839
HTG 134.327398
HUF 411.458447
IDR 16836.699531
ILS 3.71043
IMP 0.847168
INR 88.904047
IQD 1347.507882
IRR 43292.542199
ISK 144.882873
JEP 0.847168
JMD 160.763994
JOD 0.729609
JPY 161.028252
KES 133.205446
KGS 89.953147
KHR 4156.701334
KMF 491.917539
KPW 925.768888
KRW 1497.086445
KWD 0.317364
KYD 0.857031
KZT 545.43673
LAK 22444.749512
LBP 92113.993354
LKR 304.048778
LRD 194.940606
LSL 19.48181
LTL 3.037283
LVL 0.62221
LYD 5.096881
MAD 10.355267
MDL 19.315148
MGA 4839.713586
MKD 61.52794
MMK 3340.956517
MNT 3495.291547
MOP 8.250022
MRU 40.990859
MUR 48.222063
MVR 15.846103
MWK 1785.705246
MXN 21.08569
MYR 4.627824
MZN 65.739573
NAD 19.482234
NGN 1600.032681
NIO 37.781567
NOK 11.654179
NPR 142.21791
NZD 1.832832
OMR 0.396025
PAB 1.028462
PEN 3.874341
PGK 4.07542
PHP 60.12096
PKR 286.62832
PLN 4.255977
PYG 8115.037888
QAR 3.744992
RON 4.973949
RSD 117.088139
RUB 105.434227
RWF 1425.683912
SAR 3.860114
SBD 8.717846
SCR 15.535634
SDG 618.207499
SEK 11.478206
SGD 1.407205
SHP 0.847168
SLE 23.347691
SLL 21569.898032
SOS 587.866446
SRD 36.110148
STD 21290.604998
SVC 8.99867
SYP 13374.272871
SZL 19.482369
THB 35.611435
TJS 11.241199
TMT 3.600212
TND 3.312035
TOP 2.409161
TRY 36.474873
TTD 6.986942
TWD 33.898983
TZS 2587.009398
UAH 43.479185
UGX 3798.987294
USD 1.028632
UYU 45.348227
UZS 13352.155558
VES 55.439668
VND 26111.822582
VUV 122.121253
WST 2.88102
XAF 654.914092
XAG 0.033581
XAU 0.000382
XCD 2.77993
XDR 0.792745
XOF 656.787379
XPF 119.331742
YER 256.14482
ZAR 19.327048
ZMK 9258.922862
ZMW 28.565511
ZWL 331.219075
  • JRI

    0.1335

    12.23

    +1.09%

  • BCE

    0.1900

    22.73

    +0.84%

  • BCC

    3.3000

    126.91

    +2.6%

  • RIO

    0.1050

    60.485

    +0.17%

  • SCS

    0.2300

    11.47

    +2.01%

  • CMSD

    0.3950

    23.595

    +1.67%

  • CMSC

    0.3200

    23.2

    +1.38%

  • RBGPF

    -1.3300

    60.67

    -2.19%

  • NGG

    1.3400

    57.61

    +2.33%

  • RYCEF

    -0.0400

    6.91

    -0.58%

  • GSK

    0.5350

    32.615

    +1.64%

  • AZN

    0.0750

    65.445

    +0.11%

  • BTI

    -0.0900

    35.63

    -0.25%

  • RELX

    0.8500

    46.93

    +1.81%

  • VOD

    0.2050

    8.455

    +2.42%

  • BP

    0.0150

    31.105

    +0.05%

Central banks walk inflation-recession tightrope
Central banks walk inflation-recession tightrope / Photo: Jim WATSON - AFP/File

Central banks walk inflation-recession tightrope

Central banks have ramped up their battle against runaway inflation, a necessary remedy that could have the adverse side effect of tipping countries into recession, analysts say.

Text size:

Just this past week, the US Federal Reserve announced its biggest interest rate hike in almost 30 years, followed by the fifth straight increase by the Bank of England and the first in 15 years in Switzerland.

"This week was a first. The craziest in my experience," said Frederick Ducrozet, chief economist at Pictet Wealth Management.

The moves rattled stock markets as investors fear that while the rate increases are needed, they could put the brakes on economic growth if the tightening of monetary policy becomes too aggressive.

"Recessions are increasingly likely as central banks race to dramatically raise rates before inflation spirals out of control," said Craig Erlam, an analyst at online trading platform OANDA.

Capital Economics, a research group, said it does not anticipate a recession in the United States.

"But the Fed is deliberately tempering demand in order to reduce price pressures. This is a difficult line to tread and there is clearly a risk that it goes too far and the economy tips into recession," it said in a note.

Emerging countries could be collateral victims from rate hikes. The dollar rises when the US Fed raises its rates.

"A strong dollar will complicate (debt repayments) of countries with deficits, which borrow often in that currency," Ducrozet said.

- Swiss surprise -

Central banks had insisted last year that inflation was only "transitory" as prices were driven up by bottlenecks in supply chains after governments emerged from lockdowns.

But energy and food prices have soared in the wake of Russia's invasion of Ukraine, pushing inflation higher and prompting economists to lower the world's growth prospects for this year.

This has left central banks with no other choice but to move more aggressively than planned.

Australia's central bank raised rates more than expected earlier this month while Brazil last week lifted its benchmark rate for the 11th straight time. More hikes are looming in the United States and Europe.

But it is the Swiss National Bank that caused the biggest shock on Thursday when it announced a rate increase of 0.5 percentage points, the first since 2007.

The SNB had focused on keeping the Swiss franc from being too strong until now.

"The actions of the SNB are notable in that they mark a significant shift in policy (away) from a very dovish position," said Michael Hewson, chief market analyst at CMC Markets UK.

The European Central Bank has been slower to act than its peers. It is putting an end to its massive bond-buying scheme and will finally raise rates next month for the first time in a decade.

The eurozone faces another problem: The yields paid by its governments to borrow money have surged, with indebted countries such as Italy being charged a premium compared to Germany, a safer bet for investors.

This "spread" revived memories of the eurozone's debt crisis, prompting the ECB to hold an emergency meeting on Thursday after which it said it would design a tool to prevent further stress in the bond market.

The Bank of Japan bucked the global trend on Friday as it stood by its decision not to raise its rate, sending the yen close to the lowest level against the dollar since 1998.

But even the Bank of Japan could adjust its policy, said Stephen Innes, managing partner at SPI Asset Management.

"BoJ members are considering public dissatisfaction with inflation and the rapid depreciation of the yen," Innes said.

"While they plan to maintain the current easing policy, they may look to make some tweaks to support the currency," he said.

- No immediate fix -

Consumers will have to be patient before they see the rate hikes have an effect on prices.

ECB chief Christine Lagarde said it bluntly when announcing plans for a rate increase next month: "Do we expect that July interest rate hikes will have an immediate effect on inflation? The answer to that is no."

Central banks do not have control over some of the problems that are lifting inflation, such as soaring energy and food prices, and the supply chain snarls.

Capital Economics said energy and food prices accounted for 4.1 percentage points of the 7.9 percent rise in consumer prices in major advanced economies over the past year.

It expects oil, gas, and agricultural commodity prices to start falling later this year, which would bring inflation down sharply, but core inflation rates will remain elevated.

H.Roth--NZN