ECB and BOJ rate hikes are on tap
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ECB president Christine Lagarde. Photo: Kenzo Tribouillard/AFP via Getty Images
Two of the world's most important central banks appear poised to raise interest rates in the coming days, as policymakers look to get ahead of the energy price surge translating into broader inflation.
Driving the news: The European Central Bank's policy committee meets Thursday and is expected to raise its main deposit rate to 2.25%, from 2%, which would be its first rate increase in three years.
- The main event will be president Christine Lagarde's press conference, which could give hints as to whether the increase is a one-and-done rate adjustment or if more tightening is likely this year.
- Next week, the Bank of Japan meets and is expected to raise its policy rate to 1%, the highest since 1995. It may also accelerate its quantitative tightening program of shrinking its massive balance sheet.
State of play: The common thread for both the eurozone and Japanese economies is that they are taking the brunt of the energy price surge on the chin, yet economic activity has proven strikingly resilient.
- That raises the risk that the oil price shock could spread through their economies to cause broader inflation, which the coming rate adjustments are meant to head off.
What they're saying: "Markets are increasingly concerned that the BoJ is behind the curve," wrote Ayako Fujita, an economist at JPMorgan.
- "The BoJ will likely try to deliver a hawkish message to alleviate these concerns," perhaps mentioning the possibility of additional rate hikes.
Of note: Governor Kazuo Ueda will miss the meeting, the bank said, as he is expected to be hospitalized for about two weeks to treat an infection. His deputy will act as chair.
Zoom out: The Federal Reserve will be the next major central bank on tap, with its first policy meeting under chair Kevin Warsh set to conclude a week from Wednesday.
- The Fed is likely to keep interest rates unchanged for now.
