Interest rate hikes continue despite inflation softening, says Fitch

ISTANBUL

Many central banks around the world continue to raise interest rates amid fears of inflationary pressures, although consumer inflation rates have started to ease in recent months, Fitch Ratings said.

Although still at high levels, consumer inflation moderated in recent months in many economies, including the US, eurozone, Germany, Italy, Spain, Canada, and Brazil, the credit rating agency said Tuesday in a statement.

Simultaneously, however, central banks have continued with hiking cycles and policy interest rates have risen in many countries in recent weeks, it added.

While the US Federal Reserve on Feb. 1 made a rate hike of 25 basis points to raise its funds target rate's upper limit to 4.75%, the European Central Bank the day after made a rate hike of 50 basis points, raising its main refinancing operations rate to 3%. The Bank of England increased its bank rate by 0.5 percentage points to 4%.

"Rate increases have also been seen in Switzerland, Australia, Canada, India, and Indonesia, among others," Fitch said.

While many economists feared that the central banks' aggressive monetary tightening and steep rate hikes would push the global and national economies into a recession, this was surprisingly avoided last year.

Fitch said economic growth exceeded expectations in the fourth quarter of 2022 among some of the world's major economies.

While the American economy expanded at an annual rate of 2.9% in the final quarter of last year, more than expected despite recession fears, seasonally adjusted GDP increased by 0.1% in the euro area and remained stable in the EU.

China and the UK both recorded flat GDP, beating expectations of outright contraction, Fitch said.

"Emerging markets have presented a mixed picture so far, as Indonesia and Mexico grew faster than expected, while Korea and – especially Poland - disappointed with quarterly declines," it added.