Turkey went for a surprise rate cut despite 80% inflation, while Brazil held its benchmark at 13.75% after 12 straight hikes and the Bank of Japan stuck with its ultra-low rates. Thursday’s Fed move, however, sparked off a spate of action as central banks in the UK, Switzerland, South Africa and Indonesia stepped in to stamp out inflation.
The Swiss National Bank exited the negative interest rate era after over seven years as it increased rates by three-fourths of a percentage point. The increase to 0.5%, from minus 0.25%, followed a 50bps hike in June, SNB’s first rate hike in 15 years.
Similarly, the Bank of England voted to raise interest rates by half-a-percentage point to 2.25%, the highest in 14 years, to tame inflation hovering near 10% and projected to go up by at least a percentage point in October against the target of 2%. The central bank said that the UK is officially in recession. Bank of Indonesia went for a comparatively moderate 25bps increase with the central bank governor providing some balm, saying there was no need for aggressive hikes in future.
While analysts have taken it as a foregone conclusion that the Monetary Policy Committee (MPC), headed by RBI governor Shaktikanta Das, will hike rates, the bet is on the extent of the increase. Various agencies have forecast a 35-50bps increase as inflation, after moderating in July, has again shot up to 7% in August, the eighth straight month of the pace of price rise topping the upper end of the 6% target.
The RBI has already raised policy rates by 140bps since May as surging inflation prompted it to front-load the hike. The government too has initiated several measures.