PARIS, June 19, 2022 (BSS/AFP) - Central banks have ramped up their battle

against runaway inflation, a necessary remedy that could have the adverse
side effect of tipping countries into recession, analysts say.

Just this past week, the US Federal Reserve announced its biggest interest
rate hike in almost 30 years, followed by the fifth straight increase by the
Bank of England and the first in 15 years in Switzerland.

"This week was a first. The craziest in my experience," said Frederick
Ducrozet, chief economist at Pictet Wealth Management.

The moves rattled stock markets as investors fear that while the rate
increases are needed, they could put the brakes on economic growth if the
tightening of monetary policy becomes too aggressive.

"Recessions are increasingly likely as central banks race to dramatically
raise rates before inflation spirals out of control," said Craig Erlam, an
analyst at online trading platform OANDA.

Capital Economics, a research group, said it does not anticipate a recession
in the United States.

"But the Fed is deliberately tempering demand in order to reduce price
pressures. This is a difficult line to tread and there is clearly a risk that
it goes too far and the economy tips into recession," it said in a note.

Emerging countries could be collateral victims from rate hikes. The dollar
rises when the US Fed raises its rates.

"A strong dollar will complicate (debt repayments) of countries with
deficits, which borrow often in that currency," Ducrozet said.

- Swiss surprise -

Central banks had insisted last year that inflation was only "transitory" as
prices were driven up by bottlenecks in supply chains after governments
emerged from lockdowns.

But energy and food prices have soared in the wake of Russia's invasion of
Ukraine, pushing inflation higher and prompting economists to lower the
world's growth prospects for this year.

This has left central banks with no other choice but to move more
aggressively than planned.

Australia's central bank raised rates more than expected earlier this month
while Brazil last week lifted its benchmark rate for the 11th straight time.
More hikes are looming in the United States and Europe.

But it is the Swiss National Bank that caused the biggest shock on Thursday
when it announced a rate increase of 0.5 percentage points, the first since
2007.

The SNB had focused on keeping the Swiss franc from being too strong until
now.

"The actions of the SNB are notable in that they mark a significant shift in
policy (away) from a very dovish position," said Michael Hewson, chief market
analyst at CMC Markets UK.

The European Central Bank has been slower to act than its peers. It is
putting an end to its massive bond-buying scheme and will finally raise rates
next month for the first time in a decade.

The eurozone faces another problem: The yields paid by its governments to
borrow money have surged, with indebted countries such as Italy being charged
a premium compared to Germany, a safer bet for investors.

This "spread" revived memories of the eurozone's debt crisis, prompting the
ECB to hold an emergency meeting on Thursday after which it said it would
design a tool to prevent further stress in the bond market.

The Bank of Japan bucked the global trend on Friday as it stood by its
decision not to raise its rate, sending the yen close to the lowest level
against the dollar since 1998.

But even the Bank of Japan could adjust its policy, said Stephen Innes,
managing partner at SPI Asset Management.

"BoJ members are considering public dissatisfaction with inflation and the
rapid depreciation of the yen," Innes said.

"While they plan to maintain the current easing policy, they may look to make
some tweaks to support the currency," he said.

- No immediate fix -

Consumers will have to be patient before they see the rate hikes have an
effect on prices.

ECB chief Christine Lagarde said it bluntly when announcing plans for a rate
increase next month: "Do we expect that July interest rate hikes will have an
immediate effect on inflation? The answer to that is no."

Central banks do not have control over some of the problems that are lifting
inflation, such as soaring energy and food prices, and the supply chain
snarls.

Capital Economics said energy and food prices accounted for 4.1 percentage
points of the 7.9 percent rise in consumer prices in major advanced economies
over the past year.

It expects oil, gas, and agricultural commodity prices to start falling later
this year, which would bring inflation down sharply, but core inflation rates
will remain elevated.