World’s Central Banks Race to Raise Rates After Fed Increase


LONDON—Central banks around the world moved Thursday to combat the effects of a soaring dollar and rising inflation, joining the Federal Reserve in risking a recession to rein in climbing prices.

In a flurry of central bank meetings from Norway to South Africa, many raised rates by larger-than-expected margins in a day that analysts at ING billed as “Super Thursday.”

The Bank of England raised its key interest rate for the seventh consecutive time Thursday. Before the news came out, the British pound briefly touched its lowest point in 37 years against the dollar before recovering some of its losses to reach $1.13.

Even some countries that didn’t move rates—the

Bank of Japan

left its policy rate at its previous low level—took other action to ease the growing inflation pressure.

Japan said Thursday it intervened in currency markets to sell dollars and buy yen, the first such intervention in 24 years, to slow the recent fall in the Japanese currency. The yen fell to 145.87 to the dollar, its weakest level since 1998, before the intervention. It then surged to hit 141 yen, though still far off the 115 yen mark at which the dollar was trading earlier this year.

Haruhiko Kuroda, governor of the Bank of Japan, kept the central bank’s ultralow interest rates in place on Thursday.



Photo:

/Bloomberg News

Japanese Finance Minister

Shunichi Suzuki

later said the government would act again if needed, without indicating the size of the intervention. “Although foreign-exchange rates in principle should be determined in the market, we cannot stand by idly when speculative and excessive moves repeatedly occur,” he said.

The central bank meetings, mostly pre-scheduled, came after the Fed announced its 0.75-point increase the day before and capped a bustling week of global monetary policy tightening. Many central bank officials struggling with a crisis of public confidence after initially arguing that inflationary rises would be temporary, are now racing to raise interest rates to catch up with soaring prices, but not so fast that they trigger unnecessary economic pain.

Switzerland’s central bank joined the stampede toward higher rates by announcing an interest-rate increase that will put its benchmark lending rate above 0% for the first time since 2014, bringing an end to Europe’s last remaining experiment in setting negative interest rates. Sweden’s Riksbank lifted rates by 1 percentage point earlier this week, its largest increase in almost three decades.

The Bank of England was among the last to adjust rates higher, raising its key interest rate for the seventh consecutive time Thursday. Before the news came out, the British pound briefly touched its lowest point in 37 years against the dollar before recovering some of its losses to reach $1.13.

The outlier was Turkey, which appeared unconcerned with the spreading inflation threat. Its central bank cut its benchmark interest rate to 12% from 13%, despite inflation surpassing 80% in August and prompting a renewed slide in the value of its currency. Turkish President

Recep Tayyip Erdogan

has long pressured the bank to keep interest rates low and adhere to his contrarian views that high interest rates encourage rather than prevent inflation. Turkey’s lira then fell to another record low.

Among the nine members of the Bank of England’s monetary policy committee, seven voted for the half-point rate increase to 2.25%, while one voted for a smaller quarter-percentage point rise, and one other pushed for a larger three-quarter-point jump in interest rates. The split views highlight the competing concerns and conflicting economic signals central bank officials the world over are facing, but which are particularly pronounced in the U.K., which is wrestling with its worst inflation increase in roughly four decades.

How have China, Mexico and Greece handled inflation, and where does the U.S. fit in? WSJ’s Dion Rabouin explains.

Central bank officials are particularly worried about how higher interest rates might buffer the nation’s economy and exacerbate a cost-of-living crisis.

The latest economic data pointed to tentative signs that inflation in the U.K. was slowing, but also presented weaker-than-expected readings on gross domestic product. As in the U.S., a tight labor market and low unemployment have been a source of strength despite broad economic weakness.

In coming to their decision Thursday, BOE officials eschewed the option of a larger rate rise which some were expecting. The bank has continued to exhibit greater caution in the fight against inflation than central bankers elsewhere who are increasingly following the Federal Reserve’s strategy of lifting interest rates by 0.75 percentage point or more at a time.

“They are walking exactly the same tightrope at the BOE but the calculus is a lot more about how fragile the economy is, even though the U.K. has one of the worst inflation problems of the G-10,” said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors.

By opting for the half-point increase, BOE officials pointed to recent government measures to cap soaring energy bills that are expected to help alleviate one of the biggest contributors to U.K. inflation.

The Bank of England said consumer price rises in the U.K. will peak at just under 11% in October.



Photo:

Chris Ratcliffe/Bloomberg News

At its last meeting, the bank had warned that inflation would peak above 13%. The bank said Thursday that the recently announced cap would likely mean consumer-price rises will peak at just under 11% in October but inflation could remain in double digits for months before falling. The government assistance would likely mean consumers spend more at a later date, adding to inflation in the medium term.

The bank also plowed ahead with plans to begin selling its portfolio of U.K. government bonds. The sales, totaling 80 billion pounds, equivalent to $90.2 billion, over the next 12 months, come just as the U.K. government is expected to borrow more to fund a yet-to-be-announced bumper spending plan.

The bank’s half-point rise also means officials opted to disregard recent criticism that they weren’t being tough enough on the inflation surge. U.K. Prime Minister

Liz Truss,

who recently took office, has said she would review the bank’s inflation-fighting mandate. Meanwhile, the BOE’s own surveys have shown public confidence in the central bank’s ability to control inflation has fallen to a record low.

The keenly anticipated meeting came a week later than initially planned after it was postponed during a period of national mourning following the death of Queen Elizabeth II.

Write to Will Horner at William.Horner@wsj.com

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