Central Banks Divide as Some Raise Rates Amid Inflation Concerns

The world's major central banks are taking different approaches to interest rates, with some raising them and others holding steady.

The European Central Bank (ECB) raised rates on September 10, followed by the US Federal Reserve on September 16, its first rate hike in three years. The Bank of Japan also hiked its policy rate to 1.25 per cent, its highest in 31 years, on Friday.

However, not all central banks are tightening monetary policy. The Bank of England and the Reserve Bank of India held rates steady, while China is expected to maintain its current interest rates.

The reasons behind these decisions reveal a divergence in the world economy. In the US, inflation remains elevated, and the Federal Reserve wants to achieve its 2 per cent inflation goal with a 'timelier return'. Japan's central bank has shifted from trying to push up inflation to preventing it from overshooting.

The Bank of England held rates at 3.75 per cent, citing limited impact on price and wage setting in the UK due to Middle East-driven energy prices. China kept its benchmark lending rates unchanged for a 16th consecutive month, despite AI and advanced manufacturing strengthening industrial production.