Explained | Monetary policy stance of major Central banks

While the world economy is yet to recover fully from the deep cuts inflicted by the COVID-19 pandemic, the Russia-Ukraine war has casted a stagflationary shadow.

Major Central banks across the world are tightening their monetary policy stance to curb surging inflation. Here is a look:

European Central Bank

The European Central Bank may outline a clearer schedule for unwinding its extraordinary stimulus today, as worries over record-high inflation trump concerns about a war-related recession.

On the one hand, inflation is already at a record high 7.5 percent, with more increases still to come. On the other, the bloc’s economy is now stagnating, at best, with the impact of the war hurting both households and businesses.

According to ABN Amro economist Nick Kounis, although policy is expected to remain unchanged at Thursday’s meeting, ECB chief Christine Lagarde could come under pressure to signal more firmly that support will be rolled back in the coming months.

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“Lagarde could hint at a conditional end of (asset) purchases in June, opening up the possibility of a first rate hike in September,” Pictet Strategist Frederik Ducrozet said. “Alternatively, she might just refrain from pushing back against market pricing, which is consistent with lift-off in September anyway.”

US Federal Reserve

Federal Reserve Governor Christopher Waller on April 13 said the US Central bank needs to raise rates aggressively to fight inflation, but not so abruptly as to stress markets, destroy jobs and push the economy into recession.

"I don’t see value in trying to shock the markets; we are not in a Volcker kind of moment," Waller told CNBC in an interview. In the early 1980s, when inflation was last as high as it is now, Fed Chair Paul Volcker jacked up rates as much as four percentage points at a time.

The Fed raised interest rates last month for the first time in three years, but uncertainty stemming from Russia's invasion of Ukraine kept it from raising rates more than a quarter-of-a-percentage point.

People's Bank of China

China’s Central bank, on the other hand, is expected to cut its key policy interest rate for the second time this year on April 15 and reduce the reserve requirement ratio within days to help bolster a faltering economy under strain from COVID lockdowns, according to a Bloomberg report.

Fifteen of the 20 economists surveyed by Bloomberg predict the People’s Bank of China will lower the interest rate on one-year policy loans -- 11 of them forecast a 10 basis-point reduction to 2.75 percent and four expect a 5-point drop. The rest see no change.

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The PBOC is also likely to reduce the RRR -- the amount of cash that banks must hold in reserve -- after the State Council, China’s cabinet, hinted strongly on Wednesday of a cut, saying it would lower the ratio “at an appropriate time.” The two previous RRR cuts, in July and December last year, came days after a similar signal from either the State Council or Premier Li Keqiang.

India

In its monetary policy announced last week, the Reserve Bank of India (RBI) had left the repo rate unchanged at 4 percent – eleventh time in a row. The six-member monetary panel also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

According to SBI Research, the repo rate is likely to be hiked by at least 25 basis points in June with the RBI prioritising inflation over growth. The Indian Central bank emphasised on the need for withdrawal of accommodation in its first policy meeting of FY23.

Canada

The Bank of Canada on Wednesday raised interest rates by half a percentage point - its biggest single move in more than two decades - and promised more hikes to fight soaring inflation that is being driven in part by the war in Ukraine.

The Central bank raised its benchmark overnight rate to 1 percent from 0.5 percent. It also said it would allow government bonds it amassed during the COVID-19 pandemic to roll off as they mature from April 25, beginning what is known as quantitative tightening.

South Korea

The Bank of Korea added to a wave of global action against inflation this week by raising its key interest rate on April 14, brushing aside concerns about a leadership vacuum at the bank and global risks to the export-dependent economy.

The Central bank raised its seven-day repurchase rate by a quarter percentage point to 1.5 percent in the board’s first-ever decision without a governor in place. Some 11 economists surveyed by Bloomberg had expected the hike, while 10 forecast policy would remain unchanged.

Singapore

Singapore’s Central bank tightened its monetary policy on April 14, saying the widely forecast move will slow inflation momentum as the city state ramps up its battle against soaring prices made worse by the Ukraine war and global supply snags. The policy tightening, the third in the past six months, came as separate data showed Singapore’s economic momentum waning over the first quarter.

The Central bank maintained its forecast for gross domestic product to expand 3 percent to 5 percent in 2022. The economy grew 7.6 percent in 2021, the fastest in a decade, recovering from a pandemic-induced 4.1 percent contraction the previous year.

“The door is definitely not closed yet,” said Selena Ling, head of treasury research and strategy at OCBC, referring to another potential tightening in October.

Sri Lanka

Sri Lanka's Central bank doubled its key interest rates on April 8, raising each by an unprecedented 700 basis points to tame inflation that has soared due to crippling shortages of basic goods driven by a devastating economic crisis.

The RBI is prioritising inflation over growth.

Pakistan

Pakistan's Central bank raised its policy rate by 250 basis points to 12.25 percent in an emergency meeting on April 7, the bank said in a statement, the biggest hike in years.

The State Bank of Pakistan (SBP) cited a deterioration in the outlook for inflation and an increase in risks to external stability, heightened by the Russia-Ukraine conflict, as well as domestic political uncertainty.

[With inputs from Reuters and Bloomberg]