Bloomberg Economics sees central banks hiking into 2027

Global central banks are set to enter 2027 with tighter monetary policy than they hold now, according to a quarterly outlook from Bloomberg Economics. The year began with expectations that interest rates would drift lower, but officials are now raising them to contain inflation. Bloomberg Economics' aggregate gauge of advanced-economy borrowing costs prices in almost a full quarter-point of further hikes. It expects rates to stay at those levels to counter pressure from the Middle East war, resilient growth, the artificial intelligence boom and government spending.bloomberg+1

The outlook covers 23 central banks that together account for about 90% of the world economy. It comes as policymakers gather in Bangkok for the International Monetary Fund and World Bank annual meetings, which run from October 12 to 18.swissinfo+1

Hikes priced in Europe and Japan

Markets expect several major central banks to tighten again before the end of the year. The European Central Bank raised its deposit rate to 2.5% in September. Traders expect it to hold this month, but swaps imply about 23 basis points of hikes in December. Bloomberg economist David Powell expects "one final time in December" as inflation nears 4%.GLORIARMS+1

Traders are almost fully pricing a quarter-point increase by the Bank of England next month, which would be its first hike in more than three years. They are split evenly on whether a second will follow in December. Bloomberg Economics forecasts hikes in November and February. Money markets see about a 90% chance that the Bank of Japan will hike by year end, after it raised its rate to 1.25% in September. Bloomberg Economics expects increases in December, March and July that would take the rate to 2%.swissinfo+1

Fed pressure eases

For now, the Federal Reserve looks likely to hold. Earlier this month investors were betting on a second straight hike at the October 27–28 meeting, but New York Fed President John Williams and Vice Chair Philip Jefferson said they saw little urgency. Markets now put the chance of an October hike at about 20% and fully price one for December. Bloomberg's Anna Wong expects the Fed to stay on hold through year end and then cut in the second half of 2027. That puts her at odds with the Fed's dot plot and with market pricing.swissinfo

The tightening is spreading beyond the Group of Seven. India's central bank recently raised rates for the first time in four years, and Bloomberg Economics expects hikes from Korea, Sweden and New Zealand. China, Brazil and Turkey are moving the other way.swissinfo

IMF urges vigilance

IMF Managing Director Kristalina Georgieva set the tone for the Bangkok meetings in an October 7 speech in Singapore. "Now may be a good time for a prudently hawkish bias in many countries' monetary policy," she said, and she praised recent hikes by the Fed, ECB and BOJ.International Monetary Fund+1

Bloomberg Economics sees forces pulling in both directions. "The Iran war is an up arrow for inflation," it said, while "a multi-decade high for bond yields is a down arrow," which tempers "expectations on how many hikes are ahead".swissinfo