European Markets Drop 2%, Switzerland, Norway, UK Lift Rates
- Sep 22, 2022
- Bridgette Randall
Switzerland stepped out of the negative rate regime after inflation jumped to 3-decade high last month. Norway indicated future rates are likely to be moderate. The UK rates are still lagging by a wide margin to consumer price inflation.
European markets opened lower and accelerated declines following the lower U.S. stocks after the Federal Reserve delivered its third large-size rate hike.
The Bank of England in a 3-way split decision lifted its rate and the Norges Bank revised its rate higher in a unanimous decision.
European markets are not only facing higher energy costs but also confronting positive real rates for the first time after more than a decade of negative rates.
Investors are worried that the central banks, despite the recent rate hikes and hawkish rhetoric, are lagging inflation by a wide margin.
Real rates are still very low and the euro zone and the UK are still operating at real negative rates.
The DAX index fell 1.4% to 12,593.40, the CAC-40 index dropped 0.8% to 5,981.60 and the FTSE 100 index declined 5.11 points or 0.07% to 7,232.54.
Switzerland Ends Negative Rates Era
The Swiss National Bank raised its key lending rate by 75 basis points and ended the era of negative rates prevailing since early 2015.
The central bank also forecasted rates are likely to go higher as inflation is hovering near a three-decade high.
The SNB lifted its inflation outlook to 3.0% from 2.8% for 2022, and to 2.4% from 1.9% in 2023 and to 1.7% from 1.6%in 2024.
Consumer inflation in August jumped 3.5%, record high since August 1993.
Bank of England Lifts Rates by 0.5%
The Bank of England lifted its key lending rate by 50 basis points as the central bank intensified its efforts to tame sky-high inflation.
The reference lending rate was revised to 2.25% from 1.75%, the seventh rate hike in a row lifted the rate to the highest not seen since November 2008.
The central bank lowered its third quarter economic growth estimate to a decline of 0.1% from the 0.4% growth estimated in August.
The Bank of England also lowered its inflation projection to 10% for the next few months before easing after the government issued the Energy Price guarantee .
Norway Signals Nearing Rate Peak
The Norges Bank of Norway lifted its reference rate by 50 basis points to 2.25%, the level last seen in 2011.
The central bank however said future rate hikes are likely to be "moderate" as the higher rates are having an impact on the economy.
The bank is likely to lift rates again at its next meeting in November and rates are likely to stay there for a while.
The rates are likely to stay near 3% through out the winter as high inflation is expected to persist for a while.