Central Banks Scramble to Contain Rising Inflation
Global financial markets are bracing for potential interest rate hikes by major central banks to combat rising inflation. The US Federal Reserve and Bank of Japan are expected to raise their policy rates by 25 basis points each, with a full hike now priced in for Thursday's review. This would bring the US Fed's policy rate to 4.0% and the BoJ's to 1.25%. Failing to deliver these rises could lead to strong financial market reactions and undermine the credibility of both central banks.
The inflation-fighting credentials of other major central banks, including the Reserve Bank of New Zealand (RBNZ), are also under scrutiny. Markets are pricing in a 67% chance of an RBNZ rate rise on October 28, while a 75% probability is attached to a hike by the Reserve Bank of Australia (RBA) on September 29.
Recent economic data from Canada and India has shown inflation pressures remain high. Canada's August CPI inflation rate came in at 3.0%, unchanged from July, with markets pricing in a 75% chance of a +25 bps hike by the Bank of Canada on October 28. India's August CPI inflation rate was reported overnight, coming in at 4.8%, higher than the 4.4% July rate.
China's low bank loan growth is also a concern, with new yuan loans data showing a +¥60 bln rise in August, down from +¥590 bln in August 2025 and +¥900 bln in August 2024.