What global central banks have done on interest rate hikes so far

Many key economies have raised rates significantly in recent times, with Russia increasing them by a staggering 20%

Global central banks have increased interest rates from their pandemic lows through multiple rate hikes.

Russia has had to increase interest rates drastically amid geopolitical tensions. Interest rates there at 20 per cent, are now 15.75 percentage points higher than the pandemic low. But it is not the only country with aggressive rate hikes, according to a Business Standard collation of central bank action across multiple countries. Brazil at 11.75 per cent has a 9.75 percentage point higher interest rate than its low during the worst of the pandemic. Central banks had earlier cut their interest rates to help support the economy during the early part of the Covid-19 crisis. The reversal is to normalise rates as well as rein in inflation. Other countries where central banks have raised interest rates include the Republic of Korea (South Korea), the United Kingdom, South Africa and the United States of America (see chart 1).

The prevailing key interest rate for these regions vary from -0.5 per cent (Euro zone) to 4 per cent (India and South Africa).

The RBI’s March 2022 bulletin noted that there has been a fair degree of central bank action globally.

“Most EME (emerging market economy) central banks also continued with their policy tightening, including Mexico which hiked its benchmark interest rate by 50 bps in February. On February 28, 2022 in an emergency move, the Bank of Russia increased its key rate by 10.5 percentage points to 20 per cent due to deterioration in the external environment and escalating risks of currency depreciation and high inflation…On the other hand, the People’s Bank of China paused after two consecutive months of easing while the Central Bank of the Republic of Turkey maintained a pause for the second consecutive month,” it said.  

The bulletin added that there is a challenge globally in balancing inflation against supporting economic recovery. Emerging market economies also have to deal issues including capital outflows and geopolitical risks.

Inflation in India is 6.07 per cent. This places it in the middle of the pack for the eight countries under consideration. It is as high as 10.5 per cent in Brazil. South Korean inflation is at 3.7 per cent (see chart 2).

Many developed countries and regions have a lower target for inflation than India’s upper band of 6 per cent. For example, in the Eurozone, it is 2 per cent over the medium term. The current number is 5.9 per cent. The region has been facing higher inflation amid geopolitical tensions which have also affected its outlook on increasing interest rates.

A March 9, India Economics report from global financial services firm Morgan Stanley noted that inflation is likely to remain elevated in light of geopolitical tensions and their impact on commodity prices. The RBI is expected to raise rates soon, according to the report authored by economists Upasana Chachra and Bani Gambhir.

“We have been expecting a repo rate hike in the June meeting, but we now expect the April policy to mark the process of policy normalization with a reverse repo rate hike. However, if the RBI were to delay its normalization process, the risk of disruptive policy rate hikes would rise,” it said.