Copycat Central Banks Raised Rates

Copycat Central Banks Raised Rates

about 1 year ago2 mins

Both the Bank of England (BoE) and the European Central Bank (ECB) hiked interest rates on Thursday.

What does this mean?

There must be something in the air right now, because three big central banks made very similar moves this week. Back on Wednesday the Federal Reserve (the Fed) made headlines by slowing its hikes down to 0.5 percentage points, then two copycats – the BoE and the ECB – followed suit on Thursday. But a smaller hike's still a hike: they both upped rates by the same amount as the Fed, to their highest levels since 2008: that’s 3.5% in the UK and 2% in Europe. Considering that this is the BoE’s ninth straight hike and the ECB’s fourth, it’s no wonder those figures have crept so high. But with inflation on the wane in the UK and Europe last month, the central banks finally seem willing to ease up on the gas a little.

BoE rate hike

Why should I care?

For markets: Not out of the woods.

There's another reason hikes are less steep right now: central banks are trying to avoid tipping their economies into recession – but with the US and Europe circling the recessionary drain for a while now, that seems like a pretty tall order. Plus, inflation might have peaked, but it’s still miles too high. Central banks want it to be around 2% – and the Fed, the BoE, and the ECB have all warned more hikes are likely next year to help make that happen.

ECB rate hike

For you personally: Souped-up savings.

Higher interest rates aren’t good news for faltering economies, but if you’ve got savings set aside, this should come as music to your ears – especially after ten-plus years of rock-bottom rates. So whether you’re saving toward a short-term goal or biding your time until the stocks on your watchlist look like a bargain, don’t overlook the benefits of higher rates while your cash is sitting idle.

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