As recession looms, central banks have no good options

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The Bank of England. Photo: iStock

The Bank of England. Photo: iStock

As the financial world gathers in Washington DC for the annual meetings of the IMF and the IIF, it faces one of the grimmest outlooks on record.

At the time of writing the US Federal Reserve was expected to announce a 75-basis point increase in interest rates on September 21, with the Bank of England seen hiking by 50bp one day later. Some in the market have been pricing in even higher increases for both.

It was a fearsome September. The Bank of Canada hiked by 75bp early in the month, making it the most hawkish central bank so far. It has now raised rates by a full three percentage points since March, to stand at 3.25%.

And on September 20, Sweden’s Riksbank shocked with a 100bp move that was its most aggressive in 30 years. With fewer meetings than many peers, it is expected to raise rates again in November.

The World Bank, which thinks global core inflation will be 5% in 2023, cutting growth to 0.5%, warned recently of the risks of a global recession if all central banks raise too fast too quickly.