LONDON (Reuters) - Norway has become the first major developed economy to lift interest rates as growth rebounds following a pandemic that unleashed extraordinary stimulus across the globe.
As an economic recovery takes hold and inflationary pressures build, some central banks are confident that now is the time to head to the exit. Others are cautious given a still uncertain outlook, exacerbated by COVID-19 variants.
Here's a look at where major central banks stand on the path out of pandemic-era stimulus.
Graphic: cbank balsheet: https://fingfx.thomsonreuters.com/gfx/mkt/lbvgngzoqpq/cbank%20balsheet.JPG
1/ NORWAY
In addition to Thursday's 25 basis point rate hike to 0.25%, Norway's central bank forecasts four more hikes by end-2022.
That makes Norges Bank the most aggressive of the major developed economies in normalising ultra-loose policy -- an outlook that should bolster Norway's crown.
"We now expect them (rate officials) to raise rates back to the pre-virus level (1.50%) by the end of next year, which is faster than investors expect," said David Oxley, senior European economist at Capital Economics.
Graphic: Rate hike boost for the Norway crown: https://fingfx.thomsonreuters.com/gfx/mkt/egvbkyqmkpq/nok2309.png
2/ NEW ZEALAND
Markets price in a 100% chance that the Reserve Bank of New Zealand will raise rates by 25 basis points at its Oct. 6 meeting, after the central bank baulked at an expected hike in August as rising COVID-19 infections sparked another lockdown.
New Zealand's economy grew a stronger-than-expected 2.8% in the three months through June. The RBNZ has forecast its cash rate above 0.5% by the end-2021 and above 2% in 2024.
Graphic: NZ: https://fingfx.thomsonreuters.com/gfx/mkt/klpykgbdgpg/NZ.JPG
3/ CANADA
Bank of Canada Governor Tiff Macklem believes the economy is moving closer to the point where the central bank will no longer need to continue adding stimulus via quantitative easing.
The central bank tapered asset purchases in April and in July cut weekly net purchases of government bonds to a target of C$2 billion ($1.6 billion) from C$3 billion. It is expected to trim this to C$1 billion in October.
4/ UNITED STATES
The message from the Federal Reserve is clear: it will likely begin reducing $120 billion monthly bond purchases in November and rates could rise faster than anticipated.
The job market remains the key to whether the Fed will move sooner rather than later, so the next non-farm payrolls report in early October will be watched closely. Many economists reckon the Fed is unlikely to hike before 2023, but some forecast a move sooner.
"The bar for a November tapering announcement was set relatively low and this is now our central case. We continue to expect the first rate hike in Q4 2022," said Luigi Speranza, chief global economist at BNP Paribas (OTC:BNPQY) Markets.
Graphic: Fed: https://fingfx.thomsonreuters.com/gfx/mkt/egpbkyqakvq/Fed.JPG
5/ AUSTRALIA
The Reserve Bank of Australia this month pressed ahead with plans for a A$1 billion ($727 million) tapering of its bond-buying programme to A$4 billion a week but in a dovish tilt, it said it planned to maintain bond buying at that level until at least February.
The RBA, which next meets on Oct. 5, has said that while the economy will recover after a lockdown-induced slowdown it expects to keep rates at 0.1% right out to 2024 as inflation is unlikely to rise to and stay within its 2-3% target band.
6/ BRITAIN
Bank of England rate-setters meeting on Thursday rejected an early end to COVID-19 stimulus, although an additional policymaker voted for it to be curtailed. The central bank also said the case for a modest tightening of monetary policy over its forecasting period had somewhat strengthened.
British economic growth slowed unexpectedly in July and consumer price inflation saw a record jump to a nine-year high far above its 2% target.
Policymakers said inflation could temporarily rise above 4% by this year.
Markets are now pricing in a strong chance of a rate hike by February 2022.
Graphic: BOE: https://fingfx.thomsonreuters.com/gfx/mkt/byvrjlergve/BOE.JPG
7/ SWEDEN
Sweden is firmly in the dovish camp, with no plans to raise its 0% rate until Q3 2024. Still, it decided this week to end pandemic-era lending facilities, restore normal collateral provisions by year-end and end asset purchases by then.
The Riksbank could tighten policy sooner if inflation persistently surpasses the 2% target -- inflation is seen topping 3% in the coming months. But Governor Stefan Ingves seems calm on that prospect, saying that it's easier to tackle an inflation overshoot than an undershoot.
8/ EURO ZONE
The European Central Bank has taken a first small step towards unwinding emergency stimulus -- it will trim emergency bond buys over the coming quarter.
But the ECB stresses that this is not tapering and asset purchases, in some form, will remain in place for some time to boost long-term inflation.
It last hiked rates in 2011 and is not expected to lift rates for years.
Graphic: ECB bsheet: https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwkanmpo/ECB%20bsheet.JPG
9/ JAPAN
A cautious view on exports and output stemming from supply bottlenecks suggests the Bank of Japan will lag its peers in dialling back pandemic-era stimulus policies.
Supply chain disruptions add to Japan's economic woes with the recovery hobbled by weak consumption. No surprise then that the BOJ on Wednesday kept its short-term interest rate target at -0.1% and that for 10-year bond yields around 0%.
10/ SWITZERLAND
The Swiss National Bank has the lowest interest rates globally, at -0.75%, and is not expected to budge from its ultra-expansive monetary policy anytime soon.
It stuck to that stance on Thursday and repeated its commitment to currency intervention "as necessary" to curb the appreciation of the safe-haven Swiss franc, which it continued to describe as "highly valued".
Graphic: SNB: https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrdleapm/SNB.JPG