Hawks in charge of Central Bank-a-Palooza (BOE, CBRT, Norges)

• BOE raises rates by 50bps to 5.00% (not expected)
• CBRT raises rates 650bps to 15.00% (less-than-expected)
• Norges raises rate 50bps to 3.75% (not expected)

The European growth picture isn’t looking good at all.  After a steady dose of hawkish central bank decisions, it appears clear that tightening from here on out will torpedo the European economy.

BOE

The BOE’s inflation fight will force them to tank the UK economy.  The British pound rallied after the BOE delivered a half-point rate hike and signaled more hikes will be required.  The vote saw seven members support the 50bps rate increase, while two members preferred to keep rates unchanged at 4.50%.  Following the Norges bank, it seems the BOE was in good company to deliver a supersized rate hike.

The one theme is clear in Europe, inflation is not anywhere it should be this late with most respective tightening cycles.  The growth outlook for Europe is getting grimmer by each inflation report.

The fate of the British pound is still unclear.  Some traders anticipate an unnecessary recession, while others support the efforts to tame inflation.  The long-end of the curve shows Gilt yields are edging lower.

CBRT

The Turkish lira tumbled after the CBRT only raised rates by 650bps and signaled that tightening will be timely and gradual.  The new central bank governor, Hafize Erkan launched the monetary tightening process in hopes to anchor inflation expectations, and to control the deterioration in pricing behavior. This abandonment of the unorthodox monetary policy is welcome news and should support sustain price stability in the long-term.

The lira is declining quickly as the CBRT was unable to meet market expectations.  The new economic team has kicked off this tightening cycle and eventually this orthodox style of monetary policy should lead to some lira support.  The lira fell to a record low against the dollar following the decision.

Norges

Norway’s central bank surprised markets with a larger-than-expected rate increase for their 11^th straight rate increase.  The Norges bank raised the key deposit rate by 50bps to 3.75% and signaled more aggressive tightening would happen in the future.  The central bank had to something to combat sticky inflation and a struggling krone, which was the weakest G-10 currency of the year.

The Norwegian krone surged against all its major trading partners as they set the tone today for delivering aggressive tightening.

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