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Central banks wind down hiking cycles

By Charbel Kadib
1 minute read

The world’s central banks are “near the top” of their monetary policy tightening programs, with mounting evidence pointing to disinflation, according to a senior economist.

Earlier this month, the Reserve Bank of Australia (RBA) held the official cash rate at 3.6 per cent following 10 consecutive hikes totalling 350 bps. 

Other central banks around the world have since followed suit, with the Bank of Canada, the Central Bank of India, the Central Bank of Singapore, and the Bank of Korea also hitting the pause button. 

This has come amid mounting evidence of disinflation.


In Australia, annualised inflation has fallen from its peak of 7.8 per cent in the three months to 31 December to 6.8 per cent in February.

Retail sales and business conditions have weakened, with both GDP and wages growth also subdued.

In the United States, the consumer price index (CPI) rose by just 0.1 per cent in March following a 0.4 per cent rise in February and a 0.5 per cent increase in January.

In annual terms, US inflation fell to 5 per cent in the 12 months to March 2023 — the lowest level since May 2021.

According to AMP Capital chief economist Shane Oliver, the Federal Reserve would likely action one final 25 bps hike in May, taking the funds rate to a peak of 5–5.25 per cent.

However, a Fed pause could be on the cards amid weaker than expected labour market indicators, banking stress, and dovish rhetoric at the last Federal Open Market Committee (FOMC) meeting.

Mr Oliver said disinflationary indicators suggest central banks are “at or near the top” of their monetary policy tightening cycles.

The RBA, he added, would likely pause for the second consecutive month at its next meeting, despite a resilient labour market.

But he conceded it’s a “close call”.

“In Australia, strong March jobs data adding to the risk of a wages breakout and the upswing in the residential property market — which if sustained would reverse the negative wealth effect from lower home prices — increase the risk of another RBA rate hike in May,” he said.

“Our base case is that with the labour market being a lagging indicator and economic growth and inflation likely to continue to slow, the RBA will remain on hold at its May meeting.

“But it’s a close call with upcoming data on inflation to be watched closely.” 

The latest quarterly inflation figures are expected to play a key role in guiding the RBA’s next move. 

Markets are expecting the March quarter CPI data — due to be released on Wednesday, 26 April — to signal faster than anticipated progress towards the target range of 2–3 per cent.

The wind down of monetary policy tightening from the world’s central banks comes as markets brace for a global recession.

The International Monetary Fund (IMF) recently revised its economic outlook for the global economy, now anticipating world output of 2.8 per cent in 2023 before picking up to 3 per cent in 2024.

The fund’s January projections had forecast global output of 2.9 per cent in 2023 and 3.1 per cent in 2024.

According to the IMF, the revision reflects slimmer hopes of a “soft landing”, with inflationary pressures persisting despite aggressive monetary policy tightening across advanced economies.

“Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying price pressures are proving sticky, with labour markets tight in a number of economies,” the IMF observed.

Adding to expectations of a harder landing is financial system vulnerability exposed by sharp interest rate rises, with the IMF pointing to “turmoil” across the global banking sector.

“Side effects from the fast rise in policy rates are becoming apparent, as banking sector vulnerabilities have come into focus and fears of contagion have risen across the broader financial sector, including non-bank financial institutions,” the fund added.

Central banks wind down hiking cycles

The world’s central banks are “near the top” of their monetary policy tightening programs, with mounting evidence pointing to disinflation, according to a senior economist.

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