Market News
Rate hikes are on for the G10 economies - REUTERS
By Alun John
LONDON, June 18 (Reuters) — The agreement between the United States and Iran to end their conflict, and the resulting decline in oil prices, have provided some relief to central banks concerned that rising energy costs could fuel broader inflation.
However, policymakers across the developed world remain cautious. Several central banks are already in tightening mode, while others, including the U.S. Federal Reserve, have signalled they are prepared to raise interest rates further if inflationary pressures persist.
Below is a snapshot of where central banks in the Group of 10 (G10) developed economies currently stand, ranked from the highest policy rate to the lowest.
1. Australia
Policy Rate: 4.35%
The Reserve Bank of Australia (RBA) has raised interest rates three times this year, taking its cash rate to 4.35>#/strong###, the highest among G10 economies.
The increases were aimed at protecting the economy from inflationary pressures linked to higher global energy costs and have fully reversed the cuts implemented last year.
Although the RBA left rates unchanged this week, it warned that further increases may still be necessary. Financial markets currently see about a 50% chance of another rate hike before the end of the year.
2. Norway
Policy Rate: 4.25%
Norway's central bank, Norges Bank, kept its benchmark rate unchanged at 4.25>#/strong### but indicated that borrowing costs could rise again later this year.
The bank remains concerned about inflation after annual core inflation unexpectedly accelerated to 3.4% in May.
3. United Kingdom
Policy Rate: 3.75%
The Bank of England (BoE) left interest rates unchanged at 3.75>#/strong###, maintaining the level it has held since the outbreak of the U.S.–Iran conflict.
While policymakers acknowledged that inflation risks remain, only two of the nine members of the Monetary Policy Committee voted in favour of a rate increase at the latest meeting.
The BoE expects inflation to rise above 3.25>#/strong### in the final quarter of the year, compared with 2.8>#/strong### recorded in May. Markets continue to anticipate at least one additional rate increase before year-end.
4. United States
Policy Rate: 3.50%–3.75%
The Federal Reserve kept rates unchanged at 3.50% to 3.75>#/strong###, but the first meeting under new Chair Kevin Warsh delivered a distinctly hawkish message.
Updated projections showed that nine Federal Reserve officials now expect a rate hike by the end of 2026, while markets have increasingly priced in the possibility of tightening as early as September.
The Fed's stance triggered a rise in both the U.S. dollar and short-term Treasury yields.
5. New Zealand
Policy Rate: 2.25%
The Reserve Bank of New Zealand (RBNZ) is expected to consider another rate increase when it meets in early July.
Inflation is projected to move above the bank's 1%–3% target range, while unemployment remains at its highest level in a decade, presenting policymakers with a difficult balancing act.
Markets currently expect additional tightening later this year.
6. Canada
Policy Rate: 2.25%
The Bank of Canada maintained its benchmark rate at 2.25>#/strong### last week, citing limited evidence that higher energy costs are feeding into broader inflation.
Inflation remains within the bank's 1%–3% target range, and markets generally expect policymakers to remain on hold in the near term.
7. Euro Zone
Policy Rate: 2.25%
The European Central Bank (ECB) raised interest rates for the first time in almost three years, increasing its key deposit rate to 2.25>#/strong###.
The move was intended to prevent higher energy costs from spreading through the broader economy and lifting inflation further.
Investors currently expect one additional 25-basis-point rate increase before the end of the year.
8. Sweden
Policy Rate: 1.75%
Sweden's Riksbank left rates unchanged at 1.75>#/strong###.
While policymakers acknowledged that the conflict in the Middle East has increased inflationary risks, they noted that underlying inflation remains relatively subdued.
The central bank said the likelihood of future rate increases has risen.
9. Japan
Policy Rate: 1.00%
The Bank of Japan (BOJ) raised its policy rate to 1.00>#/strong###, the highest level in 31 years, marking another step in its gradual move away from ultra-loose monetary policy.
Officials indicated they remain prepared to tighten further if inflation continues to accelerate.
Higher rates could also help support the yen, which remains weak relative to other major currencies.
10. Switzerland
Policy Rate: 0.00%
The Swiss National Bank (SNB) continues to maintain the lowest policy rate among G10 economies at 0>#/strong###.
The SNB left rates unchanged, arguing that medium-term inflation pressures have changed little despite a recent rise in fuel prices.
Swiss policymakers remain concerned about excessive strength in the Swiss franc and have reiterated their willingness to intervene in currency markets if necessary.
Outlook
Although lower oil prices have eased immediate concerns about energy-driven inflation, central banks remain cautious. Inflation in many economies continues to exceed official targets, and several policymakers have signalled that additional tightening may still be required.
With the Federal Reserve, Reserve Bank of Australia, Norges Bank and Bank of Japan maintaining a hawkish bias, global interest rates are likely to remain elevated for longer than previously anticipated.
Reporting by Alun John; Editing by Dhara Ranasinghe and Alex Richardson.
