Where do central banks sit on the path to stop pandemic stimulus?

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Where do central banks sit on the path to stop pandemic stimulus?

LONDON, 23 September Reuters -- Norway is the first major economy to raise interest rates as growth rebounded following a pandemic that unleashed extraordinary stimulus across the globe.

As an inflationary recovery takes hold and the economic pressures build, some central banks are confident that now is the time to head to the exit. Others are cautious given a still uncertain outlook, exacerbated by COVID 19 variants.

Where do the big central banks sit on the path to stop pandemic stimulus?

In addition to Thursday's 25 basis point rate hike to 0.25%, Norway's central bank is forecasting four more hikes by end of 2022.

That makes Norges Bank the most aggressive of the Major developed economies in normalising ultra-loose policy - an outlook that should build Norway's crown

We now expect them to raise rates officials to restore rates to the pre-virus level 1.50% by the end of next year, which is faster than investors expect, said David Oxley, senior European economist at Capital Economics.

Markets value in a 100% chance that the Reserve Bank of New Zealand will hike rates by 25 basis points at its Oct 6 meeting, after the Central Bank baulked an expected hike in August as rising COVID - 19 infections sparked another lockdown.

In three months, the economy of New Zealand grew a stronger-than-anticipated 2.8%. The RBNZ projected its cash rate above 0.5% by 2021 and above 2% in 2024.

The head of the Bank of Canada states, Tiff Macklem, believes the economy is moving closer to the point where the Central Bank will no longer need to continue adding stimulus using quantitative easing.

The central bank cut weekly net purchases of government bonds in April and in July cut mandatory net purchases of government bonds to a target of C $2 billion $1.6 billion from C $3 billion. In October, it is expected to raise this to 500 million.

The message from the Federal Reserve is clear: it will likely begin reducing $120 billion monthly bond purchases in November and rates could rise faster than anticipated.

The job market remains the key to whether the Fed will move sooner rather than later, so the next Nonfarm payrolls report in early October will be monitored closely. Many economists doubt the Fed will hike before 2023, but some are forecasting a move sooner.

The bar for a November tapering announcement was relatively low and this is now our central case. In Q 4 2022, we expect a first rate hike, said Luigi Speranza, the chief regional economist at BNP Paribas markets.

The Reserve Bank of Australia in January pressed ahead with plans for a budget of A $1 billion $627 million tapering its bond-buying programme to A billion a week. In a dovish tilt, it said it planned to maintain bond buying at that level until at least February.

The RBA, which next meets Oct. 5, has said that while the economy will recover from a lockdown-induced slowdown it expects to keep rates at 0.1% right out to 2024 as inflation is unlikely to rise to and stay within its 2 - 3% target band.

The Board of England rate-setters meeting on Thursday rejected an extra end to COVID - 19 stimulus, although an early policymaker voted for it to be curtailed. The central bank also said the case for a moderate tightening of monetary policy over its forecasting period had somewhat strengthened.

However, the English economy slowed unexpectedly in July and consumer price inflation saw a record climbing to a nine-year high far beyond its two-for-one target.

Policymakers said inflation would temporarily rise above 4% this year.

Markets are now pricing in a strong chance of a rate hike by February 2022.

Sweden is in the dovish camp, with no plans to raise its 0% rate until Q3 2024. Still, it decided this week to restore normal credit facilities, end pandemic collateral provisions by year-end and end asset purchases by then.

The Riksbank could tighten policy sooner if inflation persistently exceeds the 2% target for inflation - inflation will be seen topping 3% in the coming months. And Governor Stefan Ingves seems calm about this prospect, saying that it's easier to tackle inflation overshoot than an undershoot.

The European Central Bank has made a first small step towards unwinding emergency stimulus to trim emergency bond buys over the coming quarter.

The ECB stresses that this is not tapering and asset purchases will remain in place for some time to boost inflation in the long term, though it is likely to actually end.

It last hiked rates in 2011 and is not expected to lift rates for years.

A cautious view on exports and output stemming from supply bottlenecks suggests the Bank of Japan will lag its peers in dialling back pandemic-era stimulus policies.

Supply chain problems add to Japan's economic woes with weak consumption in Japan. No surprise then that the BOJ trimmed its short time interest rate target at 0.1% and kept for 10 - year bond yields around 0%.

The Swiss National Bank is the most important interest rate to date at - 0.75% and is not expected to abruptly drop from its ultra-expansive monetary policy anytime soon.

It repeated that position on Thursday and stuck to its commitment to currency intervention as necessary to curb the appreciation of the safe-haven Swiss franc, which it continued to describe as highly valued, on what it said to be necessary.