Global central banks have hiked interest rates aggressively this week as they grapple to bring inflation down from multi-decade highs.
On Wednesday, the US Federal Reserve hiked its benchmark interest rate by 0.25%, taking the Fund target rate to 4.5%-4.75%.
Today, the European Central Bank (ECB) hiked its benchmark policy rates by 50 basis points. The deposit rate lifted to 2.5%, the highest level since November 2008.
In a similar vein, the Bank of England raised the bank rate by 50 basis points to a 14-year high of 4%.
The below chart plots changes in benchmark interest rates across key developed economies:
The Reserve Bank of Australia (RBA) is widely expected to lift the official cash rate (OCR) by 0.25% on Tuesday to 3.35%. This would take the OCR to its highest level since September 2012.
It is worth pointing out that Australia is far more sensitive to interest rate hikes than other developed economies owing to its very high household debt (ranked the second highest in the world behind Switzerland), alongside its very high share of floating rate mortgages and short-term fixed mortgages.
Accordingly, the RBA does not need to lift interest rates as aggressively to slow demand.
