The Strategist

Saxo Bank expects global monetary policy tightening

01/06/2022 - 03:25

Saxo Bank admits monetary policy tightening by the world's major central banks in the near future due to the persistent nature of global inflation, Saxo Bank Denmark's investment director Steen Jakobsen said.

"It is very likely that the major central banks will move into a cycle of rate hikes. And we certainly saw in December that the Bank of England was one of the first to start that process. So I fully expect global central banks to continue this trend, especially as the energy component of prices seems to continue to rise," he said when asked about the possibility of monetary tightening on a global scale.

Jakobsen recalled in this regard that current gas prices in Europe are now at historic highs and are seven to ten times higher than "standard" prices. "It is almost certain that inflation will be sustained, and if inflation is sustained, it will of course increase the need for central banks to raise rates," the analyst explained.

At the same time, the US Federal Reserve (Fed) has so far been in no hurry to raise rates, preferring to wind down its quantitative easing programme. At the same time, Saxo Bank notes that after it is phased out, the chance of the US regulator switching to a tightening of monetary policy by raising the refinancing rate is estimated as "50/50" due to the need to support economic growth amid falling public spending.

The Fed itself announced in November a gradual reduction of financial asset purchases from the market - it was initially planned to reduce them from 120 billion dollars a month by 15 billion each month. However, at the end of the month Fed governor Jerome Powell said that the Fed might end the asset purchase programme earlier than planned. So, in January the buyback volume will drop straight down to $60 billion after $90 billion in December.