Seven at one blow!

Central banks all over the world – even the Bank of Japan –raised interest rates further in December. Officially, it merely widened the target range for its 10-year government bond yield from between -0.25% and +0.25% to between -0.50% and +0.50%. However, since yields on the bonds concerned have increased from 0.25% to 0.5% as a result, we regard this as a rate hike. In Canada and the U.S., the eurozone, Switzerland, Norway and England, key rates were raised everywhere in December: “seven at one blow”, as the Brothers Grimm would say. For those not counting the Bank of Japan, just look at the Danish central bank. While its only task is to set the Danish krone to euro exchange rate, it uses its key rate to do so, and in this it follows the ECB’s lead – as was the case in December as well. I had better not mention the Reserve Bank of Australia, or else my title would no longer fit. Readers will know themselves what happened there.

The Swedish central bank reacted back on 30 November (which is good news my title); with that, the path is clear.

Further rates hikes will come in 2023, but the pace will be slower. While the key rates were raised in autumn by 75 basis points in many cases, in recent times the pace has slowed to 25 to 50 basis points.

However, should inflation turn out to be more persistent in 2023 than many – including the central banks – currently expect, then we will have to live with rate hikes for much longer.