LONDON, (Reuters) – The 2021 major central bank meeting is over. There are two camps: policymakers who are too worried by the high rate of inflation to reverse stimulus programs that were initiated in response to pandemics now; and policymakers who believe that a looser policy is necessary.

On Thursday, The Bank of England was the first major central banks to raise interest rates in the years since the COVID-19 pandemic. While the U.S Federal Reserve made a significant step towards ending bond-buying, and is preparing for rate increases, the European Central Bank continues to be in the slow lane.

This is where the policymakers stand regarding exiting pandemic-era stimulative policies. It’s in alphabetical order of their hawkishness.

(Graphic on, Central bank balance sheets: https://fingfx.thomsonreuters.com/gfx/mkt/klvyknowjvg/theme1612.PNG)

1. NORWAY

Norway’s central bank cemented its position as the most aggressive rate-setter in the developed world, raising rates https://www.reuters.com/markets/europe/norway-hikes-interest-rates-with-more-come-2021-12-16 for the second time this year on Dec. 16 despite an expansion of COVID curbs that could hurt economic prospects.

After announcing policy tightening, the bank raised rates by 25 basis point to 0.5% in September. The bank also flagged additional next year. They could potentially raise the key rate up to 1.25% by the end of 2020.

(Graphic on, New Zealand, Norway lead way with rate hikes among developed economies: https://fingfx.thomsonreuters.com/gfx/mkt/mopanqrdzva/CBANKS1712.PNG)

2/ NEW ZEALAND

New Zealand’s central banks raised rates by 0.75% last month. They forecast that they will rise to 2.5% in 2023.

Fears of economic collapse have been fueled by an escalating inflation rate and a booming housing market.

Data this week showing the economy shrank a record 3.7% https://www.reuters.com/world/asia-pacific/new-zealand-gdp-shrinks-37-q3-due-delta-lockdowns-2021-12-15 in Q3 was not as bad as expected and with COVID-19 restrictions expected to ease, the numbers have not dampened rate hike expectations.

3/ BRITAIN

The Bank of England shocked markets https://www.msn.com/en-ca/money/topstories/boe-becomes-first-major-central-bank-to-raise-rates-since-pandemic/ar-AARRc2R on Thursday with a 8-1 vote to hike rates, deciding to stamp on inflation now, rather than wait to see how the fast-spreading Omicron variant of COVID-19 impacts the economy.

The BoE explained that inflation would likely reach 6% in April, triple the target, and that further rate increases were probably required.

Markets, who had anticipated a rate hike in February but were not able to price in it, are now expecting 25 bps more tightening and two additional rate increases by March.

(Graphic on, The BoE’s base rate since 1900: https://fingfx.thomsonreuters.com/gfx/mkt/jnpweaobmpw/BoE1712.PNG )

4/ UNITED STATES

The Federal Reserve this week took a significant hawkish turn https://www.reuters.com/markets/us/fed-prepares-stiffen-inflation-response-post-transitory-world-2021-12-15.

The central bank announced Wednesday that it would end the pandemic of bond-buying and created a timetable to accelerate rate rises.

Fed Chair Jerome Powell believes there will be strong growth and full unemployment in 2022. However, inflation should not be viewed as a pressing threat.

Markets are priced accordingly to the strong possibility of rate increases in May with an eventual hike in June.

(Graphic on, Rising US inflation spurs Fed to action: https://fingfx.thomsonreuters.com/gfx/mkt/gdpzymgbovw/USCPI1712.PNG)

5/ CANADA

Tiff Macklem, Bank of Canada Governor this week suggested that rates would soon rise due to inflation reaching 18-year highs.

Markets now price in the possibility of a 25-bps rate hike in March. Canada’s central bank announced that in October, it would stop its bond-buying scheme and put forward projections of rate increases.

6/ AUSTRALIA

The dovish camp is Australia’s central banking, but it only partially.

The Reserve Bank of Australia made a significant step in unwinding the pandemic stimulus by abandoning an ultra-low yield target for bonds and opening the doors to a rate increase in 2023. This is earlier than the previous forecast of 2024.

Although Governor Philip Lowe indicated that he would be open to the end of bond purchases as soon as February, he still believes rates won’t need to rise until 2022. That puts the RBA in the rearview mirror for tightening.

7/ SWEDON

Sweden’s pandemic-era loan facilities have been ended, however rates may rise if inflation pressures are significantly increased. A rate increase is planned by the bank for late 2024.

But data this week showed headline inflation at a 25-year high https://www.reuters.com/markets/europe/headline-inflation-sweden-hits-fastest-pace-since-1993-2021-12-14, which one rate-setter said supported the case to further taper stimulus. Riksbank governor Stefan Ingves https://www.reuters.com/markets/europe/swedish-cbank-chief-says-inflation-surge-due-energy-prices-2021-12-14 attributed the surge to power prices.

8/ EURO ZONE

The European Central Bank follows a completely different route than its peer banks.

It announced Thursday that it will end the 1.85 trillion euro emergency asset-buying program in March.

However, it promised plenty of support through its lengthy-running Asset Purchase Programme. It indicated that any withdrawal from the years-long ultra-easy policy will not be quick. According to the ECB, a rate increase next year is not likely and that inflation will retreat from record highs of 4.9% in 2019, it expects.

(Graphic on, Life after PEPP looms in the euro area: https://fingfx.thomsonreuters.com/gfx/mkt/byprjqabjpe/ECB1712.PNG)

JAPAN 9

Friday’s tentative step by the Bank of Japan to dewind stimulus from pandemics was to slow down purchases of commercial and corporate paper. This will be in addition to reducing purchase of bonds and commercial papers to levels that were pre-pandemic.

However, the bank did not change its short-term interest rate target to -0.1%. It maintained its 10-year yield target of 0%. The BOJ is likely to continue its ultra-easy policy, despite inflation being well below the 2% target.

SWITZERLAND 10/

This week, the Swiss National Bank remained firm in its beliefs, declaring that its monetary policy, which combines low interest rates and frequent market intervention, was appropriate.

The SNB has been intervening sporadically in order to maintain the Swiss franc’s gains, despite the recent rise of the Swiss franc to 6-1/2 year highs. The SNB recently made its largest weekly intervention since May.

(Graphic on, CHF intervention: https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkyogbpx/CHF%20intervention.JPG )