Our team outline their forecasts for central banks, as policymakers continue to make changes in interest rates amid global inflation concerns

In this article

• Federal Reserve
• European Central Bank
• Bank of England
• Bank of Japan
• Bank of Canada
• Reserve Bank of Australia
• Riksbank
• Norges Bank
• Swiss National Bank
• National Bank of Hungary
• Czech National Bank
• National Bank of Poland
• National Bank of Romania
• Central Bank of Turkey
• People's Bank of China
• Reserve Bank of India
• Bank of Korea
• Bank Indonesia

Central banks around the world are grappling with high inflation

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Developed markets: Our calls at a glance

Source: ING

Federal Reserve

Our call: 50bp rate hikes in June, July and September before switching to 25bp in November, December, and February 2023 as quantitative tightening (QT) is felt. Rate cuts in 2H 2023.

Rationale: Domestic demand remains strong and in this environment businesses are able to pass higher energy, commodity, labour and supply chain-related costs onto their customers. The Fed is seeking to bring demand into better balance with the supply capacity of the economy. But moving into restrictive territory means slower growth and the risk of an adverse reaction and we expect the Fed to move to a more neutral position in late 2023.

Risk to our call: Domestic demand is resilient with wage rises accelerating amid ongoing labour shortages, risking higher, more prolonged, inflation. Conversely, the economy reacts badly to rate hikes (the housing market is vulnerable) and recession prompts a more rapid reversal in Fed policy.

James Knightley

European Central Bank

Our call: Rate hike in July and September plus a possible third hike at the turn of the year before pausing.

Rationale: Uncertainty surrounding the economic outlook remains high but higher inflation for longer, additional inflationary pressure still in the pipeline, and fears that the window to act could be closing rather soon pushes the ECB to act earlier. Official comments since the late April ECB meeting suggest that there is growing consensus to normalise monetary policy, i.e. ending net asset purchases and the era of negative deposit rates. Only the timing is still under discussion. Looking beyond normalisation, however, high government debt, the need for investments, a potential loss in competitiveness, and prospects of easier monetary policy elsewhere argue against a series of rate hikes. 

Risk to our call: A strong economic rebound after any end to the war in Ukraine and wage pressures building on the back of reshoring and labour shortages could keep the hawks at the ECB in the lead and push for further rate hikes in 2023.

Carsten Brzeski

Bank of England

Our call: Rate hike in June and August before a pause.

Rationale: With four rate rises under its belt, the committee has become more cautious and has hinted that markets are overestimating future hikes. Its latest forecasts showed that, if it hiked roughly six further times, inflation would be well below target in two to three years' time. While markets have been assuming the BoE’s hike profile will look similar to the Fed’s, the UK’s more ‘European’ growth outlook in the near term suggests a less imminent need for aggressive tightening.

Risk to our call: Wage pressures continue to build, so if the growth story turns out to be less lacklustre than feared, the hawks on the committee may well push for a higher terminal rate by early 2023. Like our Fed call, that would also inevitably bring forward the date of the first rate cut.

James Smith

Bank of Japan

Our call: Bank of Japan will maintain an accommodative policy stance.

Rationale: CPI will rise up and stay above 2% for a while, but BoJ will downplay it as cost-push driven inflation that will prove temporary. Market expectations on a possible policy change were killed after last month’s BoJ meeting, and no action change before year-end is expected.

Risk to our call: If a weak Japanese yen hurts the economy, then the bank may revisit its monetary policy stance, but that's more likely once Governor Haruhiko Kuroda retires next April.

Min Joo Kang

Disclaimer

This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more