• Rikki Lambert

Interest race is on at central banks as Argentina hikes 3 per cent


Central banks are pumping the only brake pedal they generally have - raising the cash rate - to contain inflation

Australia's central bank may well hike interest rates by half a percentage point again at its July meeting, if the indications in mid-June are anything to go by.


The nation's central bank spiked interest rates at its fastest single increase in decades in June, but since the US Federal Reserve increased their cash rate by three-quarters of a percent - their biggest single hike since 1994.


Argentina's central bank rocketed its cash rate by 300 basis points on Friday.


After staging an emergency meeting, Europe's central bank is signalling increases from their 0 per cent current rate at their July and September quarterly meetings, whilst Switzerland raised rates for the first time in 15 years hot on the heels of the US reserve, up half a percentage point from negative 0.75 to -0.25.


On Thursday overnight Australian time, the Bank of England again increased rates by 25 percentage points to 1.25 per cent, the highest rate in 13 years. Britain now trails the US Federal Reserve in the pace at which the key central banks are hiking the cash rate to contain inflation. The British central bank has signalled that domestic inflation could hit 11 per cent during the northern autumn and experts are predicting an end-of-year rate of 3.5 per cent in the United Kingdom.


Australia's Reserve Bank chair Dr Philip Lowe has projected a possible 7 per cent inflation figure by year's end.


Central banks are endeavouring to make it harder to borrow the money that governments wanted businesses and citizens to borrow over the last two years to stimulate spending during the COVID-19 era and associated restrictions on economic activity. Amid a constrained supply environment especially on fuels and increasingly food, due largely to the Russia-Ukraine conflict, the banks' only way (in most cases) of stifling demand is to make it harder to borrow and thereby have money to spend.


Charles Sturt University professor of economics John Hicks told Flow listeners recently he believed the Reserve Bank would steadily increase rates to contain inflation: