The End of the 'Chip Money Era': Over 60 Interest Rate Hikes Worldwide in 3 Months

[Asia Economy New York=Special Correspondent Joselgina] Central banks around the world, including the U.S. Federal Reserve (Fed), are rapidly raising benchmark interest rates. In the past three months alone, central banks have raised rates more than 60 times, the highest level since the early 2000s.

The Financial Times (FT) reported on the 29th (local time), citing data from various central banks, that "as the era of cheap money comes to an end, borrowing costs are soaring across most regions of the world." FT noted that central banks have announced at least 60 rate hikes in the past three months, describing this as "a sudden and widespread reversal of the highly accommodative monetary policies adopted since the 2008 global financial crisis."

At least 55 countries have recently raised interest rates. The Fed began raising rates in March and implemented a big step of 0.5 percentage points in May. Particularly, Fed Chair Jerome Powell signaled that some economic slowdown could be tolerated to curb soaring inflation, effectively forecasting big steps in June and July as well. Larry Summers, a Harvard professor and former U.S. Treasury Secretary, supported the Fed's monetary tightening, stating that "monetary authorities have finally started to show an overall appropriate stance."

The Bank of England (BOE) has raised its benchmark rate four consecutive times since the end of last year. This is the first time since BOE gained independence from the UK government in 1997 that it has done so. The current rate level (1.0%) is the highest since February 2009. The Bank of Korea also raised rates for two consecutive months. Central banks in Canada, Australia, Poland, and India are also expected to raise rates at their upcoming monetary policy meetings within weeks.

FT explained that "interest rates in major countries have been at unprecedentedly low levels for about the past decade, with some countries even experiencing negative rates," and cited the recent tightening background as "inflation reaching multi-decade highs in many countries." Christian Keller, an economist at Barclays, pointed out that "the tightening cycle is a genuine global phenomenon."

In particular, this is considered only the beginning. The recent rate hikes mark the start of a global tightening cycle, and rates are still at relatively low levels.

Capital Economics forecasted that out of 20 major central banks worldwide, 16 are likely to raise rates within the next six months. The U.S. and the UK are expected to move the fastest. Additionally, the market anticipates rate hikes exceeding 1.0 percentage point by the end of this year or early next year in the Eurozone, Canada, Australia, and New Zealand.

Emerging countries in Latin America such as Mexico, Peru, and Colombia have started tightening cycles since last year following the pandemic shock. Brazil's benchmark rate was 2% at the end of last year but has been raised 10 times since then to 12.75%. In Africa, Ghana, Egypt, and South Africa have raised rates.

On the other hand, China is moving in the opposite direction by cutting the one-year loan prime rate. Russia, which invaded Ukraine, has cut rates three times to stabilize the ruble.

This content was produced with the assistance of AI translation services.