Central Banks Shift Hawkish as Energy Prices and Demand Drive Policy Debate

Twelve of the world's major central banks have shifted their policy outlook to a more hawkish stance over the past year, according to data from Permutable. The analysis shows that despite stable interest rates in some cases, these banks are leaning towards tightening monetary policy.

The Federal Reserve and Bank of Japan sit at the top of the list with +99.4 and +80.6 sentiment readings, respectively. In contrast, Brazil and Russia remain dovish, with scores of -96.0 and -44.4, respectively. Only these two banks have moved in a more dovish direction over the past year.

Permutable's analysis attributes this shift to various factors, including energy prices, currencies, labour markets, and domestic demand. The Reserve Bank of New Zealand records the largest 12-month move at +139.9, taking its current reading to +87.1 after raising the official cash rate to 2.50% on July 8.

Jack Watson, Market Analyst at Permutable, emphasized that 'sentiment is capturing a change in the policy outlook that current rate settings do not show.' He warned against forecasting imminent interest rate hikes, saying 'we are not forecasting that twelve central banks are about to raise rates. The index is showing how the policy debate is moving.'