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Central bank rate hikes are far from over despite mounting risks of recession

HONG KONG – This week’s blitz of interest rate hikes is unlikely to mark the end of a campaign by central banks to crush inflation even as they run the mounting risk of driving their economies into recession.

The biggest movers included Sweden’s Riksbank, which surprised with a 100 basis-point hike, while the Federal Reserve increased its benchmark by 75 basis points for the third meeting in a row. Indonesia was also more aggressive than expected and Vietnam made a rare move, while Switzerland ended Europe’s experiment with subzero rates.

Still, Turkey cut rates, Brazil and Norway indicated they may take a time-out from their tightening of monetary policy and the Bank of Japan stood out among developed economies by maintaining ultra-low rates. The Japanese also intervened in markets in a bid to brake the yen’s tumble.

“Central bank tightening is far from over,” said Chua Hak Bin, an economist at Maybank Investment Banking Group in Singapore. “Inflation has probably peaked with easing commodity prices, but wage cost pressures have not subsided which could mean more persistent and sticky core and services inflation.”

The higher rates go, however, the greater the risk that economic growth will slow.

“Just as central banks misread the factors driving inflation in 2021, they may now be underestimating the speed with which inflation could fall as their economies slow,” according to Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and a former chief economist at the International Monetary Fund (IMF).

Here’s a rundown on the week’s decisions and what may come next:


After taking their key rate to a range of 3 per cent to 3.25 per cent, Fed officials sent a more hawkish signal than previously expected by forecasting a further 1.25 percentage points of tightening before year end.

That prompted Goldman Sachs, Bank of America and others on Wall Street to raise their own forecasts to show another 75-point jump in November and a higher peak in 2023.

Speaking of possible pain in the economy, chair Jerome Powell indicated officials are increasingly willing to tolerate a recession as the price for controlling inflation. Raising rates to 4.5 per cent would cost about 1.7 million jobs, and 5 per cent would mean 2 million fewer jobs, according to Bloomberg Economics.


The Bank of England delivered a second consecutive half-point hike in its battle to bring down inflation.

Three officials pushed for the institution to join its global peers in moving at an even quicker pace.


The Swiss National Bank raised interest rates by 75 basis points, lifting borrowing costs above zero for the first time in almost 8 years.

Some had expected an even larger hike, but president Thomas Jordan said “it cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term”.