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Five central banks that are likely to hold or cut rates in 2022

By Debabrata Das

07:18, 30 December 2021

A person to click the hypothetical button of low interest rates
Most of the central banks which are considering sticking with an easy policy are in Asia-Pacific – Photo: Shutterstock

Inflation has been the central theme for many economies around the world in 2021. Initially viewed as transitory and now more structural, several central banks have started to tighten monetary policy and will continue to do so in 2022. 

However, the story is not uniform and there are several key major central banks that will continue with an easy monetary policy to support economic growth. 

Unsurprisingly, most of the central banks which are considering sticking with an easy policy are in Asia-Pacific, a region which saw its economy battered by the Delta variant of Covid-19.

Here are the top five central banks that we expect will either cut or hold rates in 2022:

  • Bank of Japan

The Bank of Japan has kept negative interest rates for years but without little impact on raising growth and inflation. There are no signs yet that the situation will turn any time soon. At its latest monetary policy meeting in October, the Bank of Japan cut its forecast for inflation in the year ending March 2022 to 0% as compared with 0.6%. 

Even in the year ending March 2023, the central bank expects inflation to be only at 0.9%, far less than its target of 2%. 

It is a similar story with gross domestic product growth, which is unlikely to go over 3.6% until March 2023, according to the central bank. In such a scenario, negative interest rates will continue for the foreseeable future in Japan.

  • People’s Bank of China

The Chinese economy recovered the quickest after the outbreak of Covid-19. For the better part of 2021, its economy looked set to keep the momentum with wholesale price inflation reaching multi-year highs. 

However, the second half of the year has rocked the economy. First the debt crisis at real estate developer Evergrande, which soon spread to other real estate developers, and an energy crisis battered growth. Inevitably, the political hierarchy soon called upon the Chinese central bank, People’s Bank of China (PBOC), to support the economy. 

The PBOC, which had resisted switching to a dovish outlook for some time finally turned in December and delivered a rate cut to the one-year loan prime rate. Economists predict a cut in the five-year loan prime rate soon but largely expect the PBOC to follow its own message of a “stable monetary policy” to support growth over the next year.


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  • Central Bank of the Republic of Turkey

The story in Turkey defies traditional economic and monetary policy logic. Inflation is surging while President Recep Tayyip Erdogan has been pushing the central bank to cut interest rates. 

Real interest rates in Turkey, which calculate interest rates after deducting inflation, are the lowest in the world. The outlook has already sent the Turkish lira tumbling and prompted the government and the Turkish central bank to announce measures to support the currency

With Erdogan in complete control of the country, it is unlikely that a central bank chief will defy his push for cutting interest rates. That the CBRT will cut interest rates in 2022 is certain, but it remains to be seen by how much and by how many times.

  • Bank of Thailand

The tourism-dependent economy of Thailand was one of the worst affected by the Covid-19 pandemic. Though it had hoped that the reopening of borders in early November would put the economy back on track, Omicron has put that nascent recovery under threat. 

With flight and travel restrictions still persisting in many of Thailand’s source markets for tourism, the Thai central bank has retained its easy monetary policy in 2021. The central bank has also cut economic growth outlook for 2022 and economists predict that it will hold rates in 2022.

  • Swiss National Bank

The Swiss National Bank (SNB) has lagged most of its Western peers in terms of a hawkish turn in monetary policy. Even as late as 16 December, the bank retained a -0.75% interest rate though it said that it was ready to intervene in the foreign exchange market to tackle inflation. 

While inflation is at multi-year highs in Switzerland, it remains far below the levels seen in the Eurozone or in the US. According to experts at Dutch bank ING, the SNB is allowing the franc to appreciate as a tool to fight inflation. 

The SNB forecasts for inflation predict it will be between 0.7% and 1% in 2022, as compared with 1.5% in November. It is therefore far from a rate hike and will continue to keep rates at its current levels in 2022.

Read more: Five central banks that are likely to raise rates in 2022

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