Central Banks Take Hawkish Tone Amid Rising Energy Costs

Major central banks have taken on a more hawkish tone as energy costs rise globally. Persistent inflation pressures and resilient economic growth have increased the risk of further rate hikes by these institutions.

The European Central Bank recently hiked rates by 25 basis points, while upcoming meetings in the U.S. and Japan could bring monetary tightening. The Reserve Bank of Australia has already hiked interest rates three times this year to 4.35%, entirely undoing last year's cuts. Another hike is likely on the table.

The Bank of England is expected to keep rates unchanged next week, at 3.75%. However, market attention will focus on how rate-setters vote, as some members have hinted at a possible rate increase before year-end. The Federal Reserve's meeting next week also anticipates more than a 50% chance of a rate hike.

Market expectations are tilted towards further rate hikes in many countries, including the U.S., Australia, and New Zealand. The European Central Bank has also hinted at at least one further hike by year-end and a deposit rate above 3% in 2027. However, some economists expect the energy shock to weigh on economic growth and help curb inflationary pressures into next year.