Insight - Rate hikes now won’t mean easier times later

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Two of the world’s earliest hikers – the Bank of Korea (BoK) and the Reserve Bank of New Zealand (RBNZ) – signalled no imminent letup in the battle against soaring prices.The BoK, which began lifting rates in quarter-point steps almost a year ago, ditched incrementalism on Wednesday: the bank raised its benchmark rate by a half point to 2.25%.

SUCH is the determination these days to look tough on inflation that to even risk being portrayed as dovish is a stigma, regardless of merit.

The relentlessness with which many central banks are raising interest rates into a slowing global economy shows there’s little reward in modest, albeit consistent, steps.

No matter whether the officials in question were among the first to begin withdrawing pandemic-era stimulus. The consequent risks of overdoing it and being forced into an about-face and cutting in 2023 – or earlier – are mounting.

Two of the world’s earliest hikers – the Bank of Korea (BoK) and the Reserve Bank of New Zealand (RBNZ) – signalled no imminent letup in the battle against soaring prices.

The BoK, which began lifting rates in quarter-point steps almost a year ago, ditched incrementalism on Wednesday: the bank raised its benchmark rate by a half point to 2.25%.

That it was predicted by a majority of economists made it no less noteworthy. New chief Rhee Chang-yong has apparently decided that with inflation well above target, measured and steady risks being conflated with timidity.

Rhee held out the prospect of a return to smaller installments, but emphasised that inflation was too high.

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The RBNZ unveiled its third sequential hike of half-a-percentage point and signalled more to come.

“The committee is resolute in its commitment to ensure consumer price inflation returns to within the 1% to 3% target range,” the central bank said in a statement that also acknowledged a weakening global growth picture.

Escalating prices are the near enemy; slackening activity is more distant.

Like their counterparts in Seoul, New Zealand officials nevertheless warned of a hit to house prices.

What’s striking about these actions is that the duo face a significant erosion in growth, and possibly recession. Yes, inflation is too high; South Korean consumer prices rose the most in a generation during June.

No central banker wants to be damned by history as the one who was too sanguine and allowed skyrocketing prices to become embedded in the decisions, let alone psychology, of consumers and businesses.

Nor are Wellington and Seoul outliers: The Federal Reserve is weighing a second consecutive 75-basis-point hike this month, the European Central Bank is approaching liftoff, and Singapore is tightening.

The ink was barely dry on the Reserve Bank of Australia labelling 25-basis-point nudges “business as usual” than it switched to moves of twice that magnitude.