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Global Category Intelligence
Q2 2025
Global Category Intelligence
Q2 2025
Central Banks continue to tighten monetary policy.
Aug. 7, 2023
In response to increasing inflation triggered by elevated prices of goods and energy, as well as disruptions in worldwide supply networks, prominent central banks across the globe are adopting a more stringent approach to their monetary policies.
United States (Federal Reserve)
Interest rates were raised by 0.25 percentage points to a range of 5.25% to 5.50% by the Fed at its policy meeting ending on 26 July. Rates are now at their highest level since 2001. Economists believe the Fed is nearing the end of its cycle of rate increases that began in March 2022, as inflation continues to fall from its highs of mid-2022. The Fed is reducing the volume of assets it holds in its Quantitative Easing programme by $95bn per month.
In response to the pandemic, the Fed had by 15 March 2020 cut interest rates to close to 0% from 1.5%‑to 1.75% prior to the pandemic. On 23 March 2020, the Fed announced a wide range of measures designed to support the economy, including buying debt from the government, and corporations and purchasing other securities, such as those backed by mortgages and other assets.
UK (Bank of England)
On 3 August, the Bank of England’s Monetary Policy Committee (MPC) raised interest rates for the 14th meeting in a row. Rates were increased by 0.25 percentage points to 5.25%, the highest they have been since April 2008.
With a 6-3 majority, the MPC endorsed the action, wherein two members of the minority favored a 0.5 percentage point increase, and the remaining member advocated for maintaining the current rates. The outcomes of the upcoming MPC gathering are scheduled to be disclosed on 21 September.
The MPC is increasing rates in response to high inflation, which stood at 7.9% in June, down from its peak of 11.1% in October 2022, but still well above the MPC’s 2% target. The MPC also published new forecasts for the economy. It expects the inflation rate to fall to “around 5% by the end of the year”, due mostly to lower energy prices.
The MPC has started to reduce the size of its asset purchase – or quantitative easing, QE – programme from its recent peak value of £895bn to £785bn on 26 July 2023. It is doing this in two ways: by letting some of the government bonds it holds mature; and by actively selling some of the bonds it holds to the market. QE consists of the Bank creating new money electronically (as central bank reserves) and then using it to purchase financial assets, mostly government bonds.
In March 2020 the Bank introduced measures in response to Covid-19. Interest rates were cut to 0.1% – the lowest they have ever been. They remained at this level until December 2021. The MPC also expanded its quantitative easing (QE) programme by £450bn in 2020 and 2021, taking the total value of assets it owned to a peak of £895bn.
Eurozone (European Central Bank)
At its 27 July 2023 meeting, the ECB raised its main interest rates by 0.25 percentage points. This took the deposit rate up to 3.75%. The ECB has lifted rates by 4.25 percentage points in nine consecutive meetings since July 2022. The inflation rate in the Eurozone has fallen but remains well above its 2% target, though it is forecast to decline further.
The ECB has started unwinding its quantitative easing programmes from March 2023, by not reinvesting €15bn per month of maturing assets it holds in one of its two main QE programmes.
The ECB launched its pandemic response on 12 March 2020 and expanded it significantly on 18 March and 4 June. The ECB has also made cheap loans available to banks to encourage them to lend to businesses.
In July 2022, the ECB unveiled a fresh initiative for bond acquisition named the Transmission Protection Instrument (TPI). The primary intent of TPI is to intervene in cases where government borrowing expenses are increasing due to "unjustified, chaotic market trends," aiming to mitigate such developments on a country-specific basis.
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