Don't be fooled by pause in rate hikes

BRIAN MILNER - The Globe and Mail

Central bankers everywhere are busy weighing the potential impact of various shocks, currency swings and inflation spikes on their economies. And most have decided it would be prudent to wait a bit longer before ratcheting up interest rates and potentially undermining fragile recoveries.
None of the decisions comes as a surprise. Nor does the tone of the central bankers' comments, which signal that further monetary tightening lies ahead. That’s true whether we’re talking about high-growth markets in Asia, modestly expanding ones in North America or contracting economies in Britain and the battered peripheral countries of the euro zone. Austerity and a “return to normal,” whatever that means, have become the policy makers’ watchwords everywhere.
Three Asian central banks joined Britain, Canada, Australia and others on the wait-and-see list Tuesday. South Korea, which has already boosted rates twice since the beginning of the year to rein in rising consumer prices, kept its benchmark base rate at 3 per cent. Indonesia, which hiked rates by a modest 25 basis points in February, also held the line at 6.75 per cent. And the Central Bank of Sri Lanka left its key rate unchanged at 7 per cent. But it tightened policy for the first time since the Great Financial Crisis by boosting banks’ reserve requirement ratio.
Bank Indonesia governor Nasution made the policy direction crystal clear, noting that the rate decision “doesn't change Bank Indonesia’s tightening bias.”
The upshot will be a string of rate hikes later this year, especially once the fallout from the Japanese supply-chain disruptions dissipates.