Over recent months, central banks across the globe have been hiking interest rates, and some have implemented several jumbo rate hikes. This has been done to tame inflation, with central banks claiming that aggressive monetary policy tightening was needed to bring soaring prices under control.
Economists are now predicting that central banks will move away from the recent jumbo rate hikes. Instead, some experts believe banks will tighten monetary policy more gradually due to signs inflation is calming and also because of the heightened risk of recession.
Inflation drops in the United States
Figures show that inflation in the United States dropped from 8.2% in September to 7.7% in October, attributed at least partly to the jumbo hikes already imposed. With headway finally being made in bringing inflation down, central banks’ focus will now turn towards avoiding a significant recession.
While interest rate hikes are still inevitable, officials believe that the next rounds of increases are likely to be at the 0.5% mark rather than 75 basis points. In addition, economists believe that ongoing interest rate increases will be smaller than the more significant hikes seen over the past few months from many central banks.
Jennifer McKeown, the chief global economist at Capital Economics, said: “We expect central banks to slow the pace of rises due to a combination of weakening economies, easing domestic price pressures, and the fact that interest rates are above or reaching equilibrium.”
Analysts at Capital Economics have predicted that the next round of rate increases from more than 20 central banks it monitors will be 0.25% or 0.5%.
A relief for struggling homeowners
The news will be a relief for struggling homeowners who have seen their mortgage repayments rocket due to rate hikes. In addition, the spate of rate increases has impacted those due to come off fixed-rate deals and those looking to get onto the property ladder with a mortgage. While many will be relieved to hear about the gentler monetary policy tightening that central banks are expected to adopt, most will not be out of the woods financially. Borrowers still have to cope with the rise in repayments stemming from jumbo hikes that have already been imposed. In addition, they have to deal with soaring energy prices, the rising cost of food, and other rocketing living costs.