Central bank surprises see June become bumper 2023 rate hike month

The world’s major central banks delivered in June the biggest number of monthly interest rate hikes year-to-date, surprising markets and flagging more tightening ahead as policy makers grapple to get the upper hand in their battle against inflation.

Seven of the nine central banks overseeing the 10 most heavily traded currencies that met in June hiked rates, while two opted for no change, Reuters data showed.

Both Norway and the Bank of England surprised markets last month with a larger-than-expected 50 basis points move, while Canada and Australia resumed their rate hiking cycles. Sweden, Switzerland and the European Central Bank also tightened policy, taking the total monthly tally of hikes to 225 basis points last month. May had seen six rate hikes across six meetings.

“While some central banks are seeing initial progress toward lower inflation, central bankers overall continue to face a tough balancing act,” said Tiffany Wilding, economist at PIMCO.

“Without fiscal policy ready to save the day, we see a more uncertain growth environment with downside risks building over the cyclical horizon.”

The latest G10 moves bring the total 2023 rate hike tally among G10 central banks to 950 bps across 28 hikes. Looking at moves since Norway kicked off the rate hiking cycle in September 2021, major central banks have hiked interest rates so far by 3,765 bps.

While the U.S. Federal Reserve’s pause at its June meeting did not come as a surprise, the hawkish outlook from the world’s top central bank sent tremors through markets.

“We believe central banks have more work to do,” said Vanguard analysts in their mid-year outlook. “The last leg of inflation reduction to central bank targets may be the most challenging, in our view.”

Across emerging markets there was more evidence that the tightening cycle was running out of steam.

Thirteen out of 18 central banks in the Reuters sample of developing economies had interest rate setting meetings last month. However, 11 central banks opted to keep policy unchanged.

Having been a stark outlier in the emerging market tightening cycle that kicked off in spring 2021, Turkey’s central bank under new governor Hafize Gaye Erkan played catch up with a 650 bps rate hike, signalling a return to more orthodox policy making. This was the second biggest rate hike in recent times since Russia was forced to deliver an emergency 1,050 bps rate hike following its invasion of Ukraine. Meanwhile, China’s central bank eased interest rates by 10 bps.

The total rate hike tally for the year across emerging markets is 1,375 bps through 22 hikes – less than a fifth of the 7,425 bps of tightening delivered in 2022. The total amount of cuts is 60 bps across two moves.