London/Geneva: Major central banks around the world announced rate hikes by a similar amount, after the US central bank Federal Reserve raised interest rates by half a percentage point on Wednesday. The Bank of England, Britain’s central bank and the Swiss National Bank of Switzerland hiked interest rates on Thursday.
The Bank of England has increased interest rates by half a percentage point to 2.25 percent. The central bank had also increased the interest rate by half a percentage point last month. The decision to raise interest rates was postponed due to the death of Queen Elizabeth II of Britain. Currently, European countries including the US are facing unprecedented inflation. Inflation in the UK has reached its highest level since 1982 at 9.1 per cent. This is five times higher than the two percent inflation target set by the Bank of England. In addition, the British pound has hit a 37-year low against the dollar, further contributing to inflation. The central bank warned last month that inflation in the UK would reach 13.1 per cent by the end of this year and a long-term recession would begin.
The Swiss National Bank of Switzerland has made its biggest ever hike in key interest rates. Swiss National Bank President Thomas Jordan raised interest rates from minus 0.25 percent to 0.5 percent, backing interest rate hikes to maintain price stability in the medium term. This ends years of negative interest rates in Switzerland. Switzerland is considered a safe haven for investment. Due to this the depositor had to pay interest to the bank in lieu of depositing money in banks in Switzerland. There is an ex-trade practice that is exactly the opposite of the depositor’s interest rate on savings as is the norm elsewhere in the world.
In Asian countries, the Bank of Japan on Thursday decided to keep interest rates at their current levels. It took this step as a measure to protect the ‘yen’, which was weakening against the dollar. Meanwhile, China’s central bank waits to cut interest rates, contrary to the trend in the world.
Focus on the role of the Reserve Bank
Many analysts have predicted that the monetary policy review meeting of the central bank is being held between September 28 and 30 in the current month, in which steps can be taken to increase the interest rate. Rising inflation on both the retail and wholesale fronts suggests that the RBI needs to be cautious on rising food and commodity prices and accordingly a 0.35 per cent hike in the repo rate on September 30 to half a per cent is expected.
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