An episode that was repeated throughout 12 months of this year were the constant increases in Central bank interest rates around the world in an epic crusade against the historic inflation that plagues the largest economies in the world.
A fight that, for many, came late from the United States Federal Reserve and its counterpart from the old continent, the European Central Bank, which in the opinion of these voices they ignored the rising pace of the cost of living.
But once they did, they did not stop and commanded the monetary normalization of the main global currencies, making access to them more expensive. Inflation has gradually begun to subside, however, due toIt still remains to be at the levels expected by the authoritiess, therefore, ‘new announcements’ of increases are expected in 2023.
The US Federal Reserve, the largest monetary institution, began raising rates in March, staggering up to the most recent 50 basis point hike, when it realized that inflation was declining.
The US cost of living hit record high in June and has slowly slowed down towards 7.1% in November.
“The main objective of the FOMC (acronym in English for the monetary policy committee) next year will be to continue what began successfully in 2022: to maintain a pace of growth below potential that constantly narrows the gap between jobs and workers.said David Mericle, an economist at Goldman Sachs Research.
For Mericle, “we expect monetary policy to adapt if other factors, such as changes in financial conditions and business confidence, cause growth to deviate significantly from our baseline.”
The economist recalled the focused position of the leader of the Federal Reserve: that the Committee will only cut rates when it is sure that inflation is receding in a sustained manner.
Europe has been one of the regions, if not the most, affected by the historical increase in the cost of living, particularly in this part of the worldexplained by the increase in energy prices, by the Russian war that plagues the Ukraine.
The European Central Bank (ECB) was the entity that received the most accusations mentioned above, before it began with its hawkish policy. Now, with an inflation that drops by trickle but that continues to hold at record levelsthe monetary entity could prepare more increases next year.
“We believe that the ECB will increase its deposit rate by 50 basis points in February and March, to then continue with increases of less than 25 basis points in April and June. Risks lean towards a more aggressive hiking path in the near term, with more dovish headroom towards the second half of 2023 as inflation is expected to subside. Cuts may occur in the first half of 2024”, pointed out the study of forecasts for the euro area by the consulting firm Pantheon Macroeconomics.
The Bank of England is another of the most important institutions in the world that has streamlined its monetary policy around the increase in inflation, political uncertainty and the consequences of covid-19 and Brexit. Last week it raised its rates again by 50 basis points to 3.5%.
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However, the biggest surprise among the interest rate hikes was the Bank of Japan (among others). The Asian giant remained against the bullish winds of the rest of its colleagues, but in yesterday’s meeting it surprised the market, allowing the rate of return on Japan’s ten-year bonds to expand to more or less 0.5%, which in the future could also represent the turn of the monetary authorities to control the interest rate.
“Despite being promised that this is not a policy tightening, the market could be forgiven for thinking that the Bank of Japan will once again blink at reality.said Natalia Gurushina, an emerging fixed income economist at VanEck.