Federal Reserve to RBI: Central bankers spooked by lingering inflation

Many central banks are starting to withdraw the emergency stimulus they introduced to fend off last year’s pandemic recession.

With inflation accelerating, the Federal Reserve is set to slow its asset-purchase program, while peers in Norway, Brazil, Mexico, South Korea and New Zealand are among those to have already raised interest rates.

Behind the shift are signs that the recent inflation scare won’t fade soon amid supply chain strains, surging commodity prices, post-lockdown demand, ongoing stimulus and labor shortages.

Complicating the task for policy makers is that growth may be slowing, prompting some to warn of a stagflationary-lite environment.

That puts central bankers in a bind as they debate which risk they should prioritize. Targeting inflation with tighter monetary policy adds to the pressure on economies, but trying to boost demand may ignite prices further.

For now, the feeling of many is that inflation has lingered longer than most predicted. As Huw Pill, the Bank of England’s new chief economist, said last week, the “balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated.”

Not all are as concerned or looking to change tack. Officials at the European Central Bank and Bank of Japan are among those intending to keep stimulating their economies aggressively. And the International Monetary Fund predicts that in advanced economies at least, inflation will soon ease to about 2%.

What Bloomberg Economics Says:

“Stagflation is too strong a word. Still, supply shocks that lift prices and lower output leave monetary policy makers with no easy options. With little urgency to act, the Fed and other major central banks are preserving optionality. If stubborn inflation forces their hand, the global recovery will face an additional drag.”

–Tom Orlik, chief economist

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

GROUP OF SEVEN

U.S. Federal Reserve

Current federal funds rate (upper bound): 0.25%

Bloomberg Economics forecast for end of 2021: 0.25%

Bloomberg Economics forecast for end of 2022: 0.25%

Jerome Powell, who’s waiting to hear if he’ll be renominated for another four years at the helm of the Fed, has recently taken a step toward scaling back massive pandemic support.

The Fed chair last month said the U.S. central bank could start to taper monthly bond purchases as soon as November. Getting that started is top of his to-do list, alongside persuading Americans that the Fed is also keeping an eye on higher-than-expected inflation.

He’ll try to communicate that message without giving the impression that the Fed is getting closer to raising near-zero interest rates, even though policy makers were evenly split on rate liftoff next year, according to quarterly projections they released Sept. 22.

But the forecasts — displayed as anonymous dots on a chart — can be affected by shifts in personnel. In addition to Powell’s chairmanship, President Joe Biden has the chance to pick three other governors on the seven-seat Board in Washington. A decision on the chair is expected this fall.

There are also changes coming among the 12 regional Fed presidents. Two of the most hawkish — Dallas Fed President Robert Kaplan and Boston’s Eric Rosengren — are stepping down following revelations about their trading activity in 2020. Rosengren cited a serious health condition in announcing his early retirement.

What Bloomberg Economics Says:

“Stubbornly high inflation means risks appear to tilt toward an earlier hike than our current baseline of a 2023 move. However, our analysis of the views of voting FOMC members in 2022 suggests that the majority prefers a somewhat more accommodative timeline than implied by the committee median. After Rosengren’s early resignation, we think four 2022 voters currently favor a hike, against six for a hold next year.”

–Anna Wong

Rosengren’s Exit Leaves Just Four Hike Votes in 2022

European Central Bank

Current deposit rate: -0.5%

Bloomberg Economics forecast for end of 2021: -0.5%

Bloomberg Economics forecast for end of 2022: -0.5%

The ECB is preparing for a major policy update in December, when projections through 2024 will show how much progress inflation is set to make toward sustainably reaching a newly set 2% goal. Global supply bottlenecks and a series of one-time factors have pushed price growth far above that rate, though pressures are expected to ease over the course of next year.

Policy makers led by President Christine Lagarde have already decided to slow purchases under their 1.85 trillion-euro ($2.2 trillion) pandemic program in the fourth quarter, and are likely to allow the plan to expire in March. A debate in coming months about how to redesign the ECB’s older bond-buying scheme may prove more contentious, with some advocating more flexibility and an increase in pace that others say may not be needed.

What Bloomberg Economics Says:

“Wage growth is unlikely to accelerate sustainably until the significant spare capacity in the labor market is absorbed. That will leave many on the Governing Council doubtful about the persistence of inflation and pushing for an increase in bond buying through the Asset Purchase Programme. They will also be concerned about the credibility of the ECB’s commitment in its strategy review to more ‘forceful or persistent’ action at the effective lower bound.”

–David Powell

Bank of Japan

Current policy-rate balance: -0.1%

Bloomberg Economics forecast for end of 2021: -0.1%

Bloomberg Economics forecast for end of 2022: -0.1%

BOJ Governor Haruhiko Kuroda must now work with a new prime minister, Fumio Kishida, to guide the economy out of the pandemic. The BOJ could decide this quarter to extend its Covid funding measures or wrap them up by the end of March, as planned. The policy board will be watching to see if the recovery benefits from a release of pent-up demand after restrictions on activity were finally lifted last month, and as vaccination rates rise.

Still, inflation that’s forecast to stay below target for years means the bank is unlikely to let up on its main stimulus any time soon, even as peers move toward normalization. That divergence should keep the yen weak, providing a tailwind for Japan’s export-led recovery.

What Bloomberg Economics Says:

“Some central banks are looking to exit. Not the BOJ — it’s far behind. We expect it to stay on cruise control through 2022. Goushi Kataoka, a prominent reflationist on the policy board, will see his term expire next summer. Japan’s new administration could fill his seat with a person who has a more balanced view on monetary policy – supporting a move toward normalization..”

–Yuki Masujima

BOJ Board Is United for Fighting Covid Crisis

Bank of England

Current bank rate: 0.1%

Bloomberg Economics forecast for end of 2021: 0.1%

Bloomberg Economics forecast for end of 2022: 0.25%

With U.K. inflation on course to hit more than double the BOE’s 2% target by the end of the year, speculation is mounting the institution will be the among the first of its G-7 peers to start unwinding pandemic-era rate cuts.

While officials said in September that they didn’t necessarily have to wait until their bond-buying plan finishes at the end of this year to act, most economists are penciling in the first move in for 2022. Markets are even more aggressive, and at one stage were predicting three increases next year.

Still, concerns that a premature tightening would choke off the recovery may yet stay the BOE’s hand, especially as U.K. consumers prepare for a difficult winter of mounting bills.

What Bloomberg Economics Says:

“Inflation is becoming increasingly hard to ignore for the BOE. But we expect a rise in unemployment, following the end of the government’s furlough scheme, and a slower recovery to cool concerns among policy makers. That should mean interest rates are left alone until May. Still, we can’t rule out an increase this year if inflation continues to surprise and expectations drift higher.”

–Dan Hanson

Bank of Canada

Current overnight lending rate: 0.25%

Bloomberg Economics forecast for end of 2021: 0.25%

Bloomberg Economics forecast for end of 2022: 0.5%

The Bank of Canada’s next meeting is on Oct. 27, where it will release an updated set of quarterly forecasts. Economists largely expect the central bank to revise down its forecast for the third quarter after July and August monthly GDP showed the quarter tracking well below its previous 7.3% forecast. While the institution is not expected to change its policy rate, economists will be watching for changes to the pace of asset purchases or forward guidance.

Governor Tiff Macklem has already reduced the pace of government bond buying three times in the past year and is expected to taper asset purchases once more this month to C$1 billion in Government of Canada bonds per week. It’s also possible the Bank of Canada will provide some update around its forward guidance, which currently states it will keep interest rates low until the output gap is closed and inflation returns sustainably to 2% — something it doesn’t see occurring until the second half of next year.

What Bloomberg Economics Says:

“As economic reopening bumps up against fractured supply chains, consumer price inflation may prove stickier for longer. Our updated projections have inflation holding above 4% through 2021, slowing to an average of 2.5% in 2H 2022. As the output gap closes in 4Q 2022, an initial rate hike happens a quarter sooner than we previously expected.”

–Andrew Husby

BRICS CENTRAL BANKS

People’s Bank of China

Current 1-year loan prime rate: 3.85%

Bloomberg Economics forecast for end of 2021: 3.85%

Bloomberg Economics forecast for end of 2022: 3.75%

China’s central bank began gradually curbing credit expansion to control financial risks this year once the economy’s recovery from the pandemic was well underway. However, the economy started showing signs of weakening in the second half, prompting authorities to make a surprise shift in July by reducing the amount of cash banks must hold in reserve — in part to help banks with liquidity needs, but also to boost lending to small businesses hurt by rising commodity prices.

Since then, growth risks have only gotten worse. Stringent virus control measures to contain sporadic outbreaks have made still-cautious consumers even more wary of spending. A debt crisis at a major property developer has roiled financial markets, while Beijing’s tighter restrictions on the real estate market have caused a slump in construction investment. More recently, an electricity shortage has forced factories to shut, with ripple effects across global supply chains. That weaker outlook means the central bank will likely reduce the reserve requirement ratio for banks again, economists predict, and possibly even lower its policy rates.

What Bloomberg Economics Says:

China’s economy is facing a range of downside risks, from power shortages to virus outbreaks and weak consumption. Market strains from the crisis at Evergrande are another worry. We expect the PBOC to keep a loose stance to cushion the slowdown – pumping more liquidity into the banking system and cutting the reserve requirement ratio by another 50 basis points, probably in October or November. A rate cut is unlikely in the near term – that would only fuel financial imbalances that the authorities are keen to curb.”

–David Qu

Reserve Bank of India

Current RBI repurchase rate: 4%

Bloomberg Economics forecast for end of 2021: 4%

Bloomberg Economics forecast for end of 2022: 4%

India’s central bank suspended its version of quantitative easing this month, signaling the start of tapering pandemic-era stimulus measures as an economic recovery takes hold. While it kept the benchmark repurchase rate unchanged at a historic low of 4% and the monetary stance dovish, it made a gradual move to withdraw the billions of dollars it has pumped in since the start of the pandemic last year.

That liquidity injection risks adding to inflationary pressures and fueling an asset bubble with policy makers growing increasingly confident that the nascent recovery will gather pace as vaccination picks up and chances of a third wave ebb. The Reserve Bank of India expects pent-up demand and the festival season to give a fillip to urban demand in the second half of the financial year to March 2022, while rural demand is expected to be underpinned by a near-normal monsoon and record food grain production.

What Bloomberg Economics Says:

“The RBI’s decision to suspend quantitative easing at its October policy marked a retreat from its previous stance of keeping long-term sovereign bond yields in check. This is likely to steepen the yield curve, but we don’t see it is as a pre-cursor to an imminent policy rate hike. We are sticking to our view that the RBI will keep policy rates low for longer to revive growth on a more durable basis. We expect it to begin a gradual rate hike cycle in April 2022 by first raising the reverse repo rate and see the first repo rate hike only in February 2023.”

–Abhishek Gupta

Central Bank of Brazil

Current Selic target rate: 6.25%

Bloomberg Economics forecast for end of 2021: 8%

Bloomberg Economics forecast for end of 2022: 8.5%

Brazil’s central bank has unleashed the world’s most aggressive monetary tightening campaign this year, raising its benchmark interest rate by 425 points since March and promising to take it to a “significantly restrictive” level until inflation expectations ease back to target. Yet prices are rising by more than 10% a year, the fastest pace since 2016, and expectations for 2022 are running above the 3.5% goal.

Complicating matters for policy makers led by Roberto Campos Neto is a severe drought that’s making hydro electricity costlier, just as commodities and food prices jump across the globe and local demand for services grow with the economic reopening. All things considered, traders in the local futures market are already betting that the Selic will end 2022 above 10%.

What Bloomberg Economics Says:

“Inflation continues to run hot, and appears headed to a slow descent in the coming quarters. In an effort to bring inflation expectations for 2022 back to the center of the target, the central bank indicated that it intends to bring the monetary policy to tight territory for the first time since 2017 — but has not hinted on how tight the policy will be. We expect the BCB will continue to raise the policy rate through February, after when the shifting focus to 2023 inflation will give the monetary authorities some reason to pause and monitor the effects of the tightening introduced that far.”

–Adriana Dupita

Bank of Russia

Current key rate: 6.75%

Bloomberg Economics forecast for end of 2021: 7.25%

Bloomberg Economics forecast for end of 2022: 6%

The Bank of Russia raised its benchmark rate to 6.75% on Sept. 10, meaning Governor Elvira Nabiullina has delivered a total of 250 basis points of tightening this year. And there’s no sign she’s done: Nabiullina said it may take more than one rate increase to tame runaway inflation and curb inflation expectations, which remain elevated.

Consumer-price growth accelerated to 7.4% in September from a year earlier. That was above economists’ expectations and boosts the chances for a 50 basis-point rate increase on Oct. 22. Delays in the domestic harvest as well as climbing food prices globally are keeping Russia’s inflation rate at the fastest pace in half a decade.

What Bloomberg Economics Says:

“Most of the spike in Russia’s inflation looks fleeting, but the central bank isn’t taking any chances. Resilient demand and rising inflation expectations pose a more persistent threat once supply shocks fade. Policy makers are likely to favor another 50 bps of tightening this month to regain control. If price pressure remains elevated, further hikes may follow.”

–Scott Johnson

South African Reserve Bank

Current repo average rate: 3.5%

Bloomberg Economics forecast for end of 2021: 3.5%

Bloomberg Economics forecast for end of 2022: 4.5%

South Africa’s central bank has made it clear that its next move will be to raise borrowing costs.

While no member of its monetary policy committee has voted for tightening this year, that could change at its next meeting as the panel now sees material upside risks to its inflation outlook. It prefers to anchor price-growth expectations close to the 4.5% midpoint of its target range and sees inflation at or below the level through 2023.

The implied policy rate path of the quarterly projection model, which the MPC uses as broad policy guide, indicates a 25-basis point increase in the final quarter of this year and in every quarter of 2022 and 2023. “Delaying the lift-off could see the monetary policy authorities playing catch-up with inflation, potentially destabilizing the relatively well-anchored inflation expectations,” the Reserve Bank said Tuesday in its six-monthly monetary policy review.

What Bloomberg Economics Says:

“The SARB continues to signal the need for a gradual normalization of rates from the record low of 3.5%. It’s model points to 4Q as the possible start, but we expect ongoing virus uncertainty and still muted core inflation to push this out to 1Q2022. The bank envisions only a gradual rise in rates, however, rising inflation risks and the anticipation of higher U.S. rates could speed up the monetary tightening cycle once it begins.”

–Boingotlo Gasealahwe

MINT CENTRAL BANKS

Banco de Mexico

Current overnight rate: 4.75%

Bloomberg Economics forecast for end of 2021: 5.25%

Bloomberg Economics forecast for end of 2022: 5.5%

Key Speakers At The Central Bank Conference

Alejandro Diaz de Leon

Mexico’s central bank has been slowly removing the monetary stimulus granted during the pandemic, raising the overnight interest rate by a quarter percentage point in each of its last three board meetings through September. Defying Banxico’s initial projections that inflation would slow by the end of the year, consumer prices have been rising at an annual pace of around 6% since April, double the central bank’s target.

The deterioration in inflation expectations takes place as Banxico is going through a leadership change: Governor Alejandro Diaz de Leon will finish his term at the end of the year and he is set to be replaced by former Finance Minister Arturo Herrera, a change that led to speculation about the board being more dovish in the future.

What Bloomberg Economics Says:

“We expect Banxico to increase its policy rate by 25 basis points in November and again in December — closing the year at 5.25% — to anchor inflation expectations. Decelerating inflation, weak growth and near-neutral rates next year should allow for a pause until the Federal Reserve begins hiking.”

–Felipe Hernandez

Bank Indonesia

Current 7-day reverse repo rate: 3.5%

Bloomberg Economics forecast for end of 2021: 3.5%

Bloomberg Economics forecast for end of 2022: 3.75%

It’s smoother sailing for Bank Indonesia this quarter, with the nation’s worst Covid-19 wave contained and the economy reopening. The rupiah has shaken off fears around the Fed’s impending taper — it’s the best performer among emerging markets so far in the second half. With inflation under control, Governor Perry Warjiyo has room to keep policy rates at record lows for the rest of this year and through much of next.

Should the market turn volatile once the Fed begins tightening, Indonesia is banking on a robust trade balance — thanks to surging demand for palm oil and coal — and record forex reserves to defend its currency. Extending its $31 billion bond-buying program should also help Southeast Asia’s largest economy control borrowing costs.

What Bloomberg Economics Says:

“Bank Indonesia could justify another rate cut with the inflation outlook benign and recovery prospects dented by slow shots and the threat of more Delta outbreaks. But the rupiah remains vulnerable to selling pressure, precluding a cut. That suggests the central bank will instead lean on bond purchases to support growth, making the next move in rates a hike — in 4Q 2022, or later.”

–Tamara Henderson

Central Bank of Turkey

Current 1-week repo rate: 18%

Bloomberg Economics forecast for end of 2021: 16.5%

Bloomberg Economics forecast for end of 2022: 14%

Turkey’s central bank unleashed a new bout of market turbulence by unexpectedly lowering interest rates last month, reflecting the long shadow cast by President Recep Tayyip Erdogan over monetary policy. The surprise cut came despite rising prices and after Erdogan called for lower borrowing costs, making the lira the worst-performing emerging market currency of this year again.

Not delivering on the president’s unorthodox doctrine could have cost the central bank Governor Sahap Kavcioglu his job. Kavcioglu, who held rates steady for five meetings until last month, is the fourth governor since 2019, with the president having fired his three immediate predecessors.

Both headline inflation and a core gauge closely watched by the central bank accelerated in September but some economists say officials may continue cutting rates as early as this month as it no longer offers a clear guidance on the monetary policy implications of price growth.

What Bloomberg Economics Says:

“Turkey has embarked on an easing cycle while its peers are raising interest rates. Lower rates now risk higher rates in the future. In the meantime, the lira will continue to test fresh lows.”

–Ziad Daoud

Central Bank of Nigeria

Current central bank rate: 11.5%

Bloomberg Economics forecast for end of 2021: 12%

Bloomberg Economics forecast for end of 2022: 14%

Nigeria’s central bank will probably leave its key interest rate unchanged for the rest of the year as it looks to build growth momentum in Africa’s biggest economy.

Output undershot forecasts in the second quarter, suggesting the economy is struggling to recover from its biggest contraction in almost three decades in 2020. That forced the central bank to cut its economic growth forecast for this year to 2.86% from 3.15%.

Governor Godwin Emefiele has previously said the MPC can only shift to fighting inflation, which has exceeded the 9% top of the central bank’s target band for more than six years, once the economy’s recovery from last year’s coronavirus-induced contraction gathers pace.

What Bloomberg Economics Says:

“Nigeria’s inflation remains above target, but the central has made it clear it wants to see a solid recovery before switches to fighting inflation. We have pencilled in 4Q21 as the start of the hiking cycle, but a faster disinflation path and weaker than expected growth could stay the CBN’s hand.”

–Boingotlo Gasealahwe

OTHER G-20 CENTRAL BANKS

Bank of Korea

Current base rate: 0.75%

Bloomberg Economics forecast for end of 2021: 1%

Bloomberg Economics forecast for end of 2022: 1.25%

The Bank of Korea is well ahead of the Federal Reserve and some other peers in developed nations in reining in pandemic-era stimulus after lifting its benchmark interest rate from a record low of 0.5% in August. The central bank has two rate decisions left this year and most economists believe it will go ahead with another 25 basis point hike in November rather than this week.

As the BOK embarks on the path to policy normalization, it is shifting its focus from fueling the economic rebound to curbing household debt at the center of financial imbalances. Governor Lee Ju-yeol, who steps down in March, has recently held met with financial regulators and agreed to coordinate policy responses with them.

What Bloomberg Economics Says:

“The Bank of Korea has entered a rate hike cycle with its August liftoff, and we see conditions ripe for another increase this year, most likely in November. Resilience in exports and a rebound in activity amid a rapidly rising vaccination rate suggest growth momentum remains solid. Financial imbalances, meanwhile, have also been growing, as have inflationary pressures.”

–Justin Jimenez

Reserve Bank of Australia

Current cash rate target: 0.1%

Bloomberg Economics forecast for end of 2021: 0.1%

Bloomberg Economics forecast for end of 2022: 0.1%

Reserve Bank Governor Philip Lowe is betting the economy will see a swift rebound once virus restrictions across the population-heavy east coast ease as vaccination levels climb. Even after the economy was battered by lockdowns in the third quarter, Lowe has forged ahead with a reduction in weekly bond purchases to A$4 billion ($2.9 billion) from A$5 billion and will review the pace again in mid-February, with another reduction likely if the recovery materializes.

As for the main cash rate, Lowe is sticking with forward guidance that suggests there won’t be any increase to the current record-low level of 0.1% until 2024 at the earliest. That’s fueling a surge in the nation’s already lofty home prices, spurring recent moves by the banking regulator to raise the minimum interest-rate buffer that lenders need to account for when assessing home-loan applications.

What Bloomberg Economics Says:

“With the RBA’s conditions for rate hikes — sustainable inflation within the target band — unlikely to be met until late 2024 the pace of monetary policy tightening in Australia is likely to remain gradual. While we expect a prolonged tapering of bond purchases over 2022, policymakers focus is likely to switch towards regulatory restrictions to contain financial stability risks. An initial tightening of macro prudential policy is likely to be followed by further measures, potentially as early as 4Q 2021.“

–James McIntyre

Central Bank of Argentina

Current rate floor: 38%

Bloomberg Economics forecast for end of 2021: 38%

Bloomberg Economics forecast for end of 2022: 35%

Argentina’s central bank is a clear outlier in Latin America’s trend for rising interest rates. With President Alberto Fernandez’s government facing midterm elections in November, the central bank is printing money to finance public spending at the fastest pace so far this year. Even with annual inflation accelerating past 50%, central bank chief Miguel Pesce shows no signs of raising interest rates any time soon.

One reason is that higher rates would lead to greater interest payments on a ballooning debt load, further complicating government finances. Central bank debt has catapulted to 4.2 trillion pesos ($42.5 billion) from 2.4 trillion a year ago, according to Oct. 1 data.

What Bloomberg Economics Says:

“The BCRA has focused its efforts so far on strengthening the peso in real terms, in hopes this will help curb inflation. At the same time, it has left the policy rate virtually unchanged at 38% since March 2020, meaning deeply negative real rates for investors. That policy mix is unlikely to change before year-end, or to survive a deal with the IMF. A deal with the Fund may be hard to reach after a defeat in the Sept. 12 primaries changed the balance of power between President Fernandez and Vice-President Cristina Fernandez de Kirchner.”

–Adriana Dupita

G-10 CURRENCIES AND EAST EUROPE ECONOMIES

Swiss National Bank

Current policy rate: -0.75%

Median economist forecast for end of 2021: -0.75%

Median economist forecast for end of 2022: -0.75%

The SNB’s monetary policy consists of negative rates and currency-market interventions, which central bank President Thomas Jordan says are the best policy tools in light of his country’s small bond market. Economists don’t expect that stance to change in the next year.

The global economic recovery from the pandemic has taken pressure off the franc — which investors typically flock to as a haven. That’s allowed the SNB to ease its foot off the gas on foreign exchange interventions. The spike in inflation seen in the euro area and the U.S. hasn’t been evident in Switzerland yet, with consumer price pressures forecast to remain well within the SNB’s definition of price stability.

Sveriges Riksbank

Current repo rate: 0%

Median economist forecast for end of 2021: 0%

Median economist forecast for end of 2022: 0%

The Riksbank still expects to hold its benchmark rate at zero all the way through the third quarter of 2024, which would mean a full decade of keeping its benchmark rate at or below zero. That is despite a robust economic recovery and projections of inflation peaking above 3% in the coming months.

While rate-setters may pencil in a hike toward the end of 2024 at their November meeting, the majority view remains that the risks associated with tightening too soon are greater than holding on to an expansionary policy for too long. After scaling back large-scale asset purchases implemented during the crisis, the Riksbank expects to keep its balance sheet largely unchanged through 2022 by compensating for bond redemptions.

Norges Bank

Current deposit rate: 0.25%

Median economist forecast for end of 2021: 0.5%

Median economist forecast for end of 2022: 1%

Norway’s central bank is set for another 25 basis point interest rate hike before year-end after it last month delivered the first post-pandemic increase in borrowing costs among economies with the world’s 10 most-traded currencies. Norges Bank also forecast a “slightly” elevated trajectory for the benchmark than signaled in June, cementing its outlier status among the rich peers in unwinding the crisis policies.

The oil-rich Nordic economy has recovered faster than most, while Governor Oystein Olsen hasn’t needed to deploy any unconventional tools as the government is relying more than ever on the world’s largest sovereign wealth fund for stimulus. Policy makers see the risk of too-high price growth as “limited,” with core inflation at the slowest level since 2017.

Reserve Bank of New Zealand

Current cash rate: 0.5%

Bloomberg Economics forecast for end of 2021: 0.75%

Bloomberg Economics forecast for end of 2022: 0.75%

After a false start in August, when a nationwide lockdown stayed its hand, the RBNZ raised the cash rate on Oct. 6 and signaled more hikes to come. Inflation is already in breach of the bank’s 1-3% target band and forecast to accelerate further. The labor market is tight, with unemployment at 4% matching its pre-pandemic low.

But much will depend on how the economy responds to New Zealand’s current coronavirus outbreak. Largest city Auckland remains in lockdown and the delta variant has spread to the neighboring Waikato region. The government plans to ease restrictions once enough people are vaccinated but with the virus circulating, the economy may not bounce back from a third-quarter contraction as rapidly as the RBNZ expects.

What Bloomberg Economics Says:

“The RBNZ has started tightening policy, responding to emerging signs of wage gains and inflation pressures following a rapid closed-border recovery. Further tightening is likely in our view, with a rate rise and harsher curbs on lending over coming months. But the entry of the delta variant in covid-free New Zealand looks set to derail the economy, along with the RBNZ’s projections for an aggressive lift in rates through 2022.”

–James McIntyre

National Bank of Poland

Current cash rate: 0.5%

Median economist forecast for end of 2022: 0.75% (survey conducted before last week’s surprise rate hike)

Poland’s Central Bank Governor Adam Glapinski News Conference As Rates Held And Hawks Sidelined

Adam Glapinski

Poland has shifted into wait-and-see mode for monetary policy after shocking economists and investors alike with its first interest-rate hike since 2012 in early October. Central bank Governor Adam Glapinski says he “can’t say what the next move will be” as he assesses the effect of the step on the economy’s recovery.

But with inflation set to remain way above target and Prime Minister Mateusz Morawiecki taking an increasing interest in elevated consumer prices, another increase can’t be ruled out in the coming months. The pandemic, which is raging in other parts of eastern Europe, is likely to dictate the path ahead.

Czech National Bank

Current cash rate: 1.5%

Median economist forecast for end of 2021: 2%

Median economist forecast for end of 2022: 2.5%

Czech Central Bank Rates Decision

Jiri Rusnok

The Czech central bank has accelerated its campaign against inflation, with a surprising 75 basis-point rate increase on Sept. 30 marking its biggest move in 24 years. That triggered a rare rebuke from the government, which fears that higher borrowing costs will undermine the economic recovery.

The bank worries that the fastest inflation in 13 years, combined with the EU’s lowest jobless rate, will boost wage demands. It pledged more rate hikes this year and eventually wants to bring the benchmark to “normal levels” of 2.5% to 3%. “We simply need to send a strong signal to people and the economy that we won’t allow inflation expectations to become detached from our target,” Governor Jiri Rusnok said after the September decision.