Central Banks Turn Hawkish as Energy Costs Rise

Major central banks around the world are striking a more hawkish tone as energy costs continue to rise. This shift in sentiment has increased the risk of further rate hikes by these institutions. The European Central Bank has already hiked rates by 25 basis points on Thursday, and upcoming meetings for the US and Japanese central banks could bring additional monetary tightening.

The Reserve Bank of Australia is expected to hike its interest rate again, potentially undoing last year's cuts. With a hot July inflation print, market expectations are tilted towards another increase. Norway's Norges Bank has also been hiking rates, leaving them unchanged at 4.25% in August but noting that inflation had softened.

However, not all central banks are expected to follow suit. The Bank of England is likely to keep its rate unchanged next week at 3.75%, with market attention focusing on how rate-setters vote. Meanwhile, the Federal Reserve's meeting next week has a more than 50% chance of a rate hike, according to markets.

The European Central Bank raised rates for the second time this year and struck a hawkish tone as energy prices rise. Markets price in at least one further hike by year-end and a deposit rate above 3% in 2027.