Central Banks across continents raise rates to firefight inflation

Central Banks across Europe, America and Asia have raised benchmark interest rates to fight the runaway inflation and due to the high global commodity prices, particularly the crude and food-grain prices need policy to contain them.

New Delhi: Central Banks across Europe, America and Asia have raised benchmark interest rates as they struggle to fight the runaway inflation as they realized that the high global commodity prices, particularly the crude and food-grain prices are not transitory in nature and they need policy response to contain them.

While India’s Central Bank, the Reserve Bank of India raised the benchmark interbank lending rate, the repo rate, by 40 basis points to 4.4 per cent, US Federal Reserve effected the steepest rate hike in over decades the same day. On Wednesday, the US Federal Reserve raised the benchmark lending rate by 50 basis points, which is seen as the biggest hike in over two decades.

With the new hike, the new benchmark interest rate in the US reached in the range of 0.75-to-1 per cent, which is the highest since the start of Covid-19 pandemic. The US Federal Reserve deliberated its move for two days before announcing the hike of 50 basis points on Wednesday, the highest since 2000. The move is aimed at containing the inflation in the US which is running at a level not witnessed in the last four decades.

US Federal Reserve Chair Jerome Powell said the hike was essential to bring down inflation. Powell hinted at more rate hikes in the next couple of meetings but ruled out another hike to be in the range of 75 basis points. The US Central Bank is not alone in raising the interest rate to contain inflation. A day before, Australia's Reserve Bank announced the first interest rate hike in more than a decade as it raised the interest rate by 25 basis points to take it to 35 basis points.

India, US, UK, Australia hike interest rates

While India’s central bank, the RBI, announced the first rate hike a few hours ahead of the US policy announcement, the Bank of England followed suit the next day. The UK's central Bank, the Bank of England (BoE) , hiked interest rates by 25 basis points on Thursday to take the benchmark interest rate to 1 per cent, the highest since 2009 as the country is struggling to contain the inflation which is the highest in the last three decades. In a span of three days, Tuesday to Thursday, four central banks of the US, India, Australia and the UK have announced the hike in benchmark rates to contain the inflation.

No hike by Japan & European Central Bank

However, some other central banks such as the Bank of Japan (BoJ) and European Central Bank (ECB) have resisted the move. In the policy announcements made late last month, the Bank of Japan decided to maintain the status quo with the interest rates as they remain near zero or in negative. European Central Bank's Executive Board Member Isabel Schnabel on Thursday told a German newspaper that the ECB may hike interest rates in July this year to tame inflation.