There were 352 rate increases by central banks worldwide between January 2022 and December 20, 2022. Only 15 interest rate reduction choices.

Everyone's expectations for a return to normal are being challenged more than ever by the tightening of the financial system.

Commodity prices in uptrend

Energy, raw materials, and foodstuffs are examples of essential products and inputs that will have an impact on global inflation in 2023. Particularly, the cost of gasoline (energy) is attracting a lot of attention and could continue to frustrate policymakers as early as the end of 2022. Up until this point, the prices of WTI and Brent crude oil were trading at roughly $78 and $82 per barrel, respectively.

A rebound in Chinese oil demand following its reopening, together with a decline in Russian supply of roughly one million barrels per day, is what Bank of America predicts would result in Brent oil prices at an average of $100 per barrel in 2023. In an effort to raise oil prices, OPEC may also completely execute a 2 million barrel per day output cut. Even according to this bank's projection, oil prices could exceed $120 per barrel in 2023.

The conflict between Russia and Ukraine in 2022 will have an impact on the world economy. Russia and the West are engaged in an energy war that has barely begun. This will have a significant impact on the monetary policies of central banks as well as the pricing of commodities, consumption, and food prices.

Dealing with inflation

About 100 central banks increased interest rates in 2022. There were 352 rate increases by central banks worldwide between January 2022 and December 20, 2022. Only 15 interest rate reduction choices.

Other central banks are under pressure to hike rates to combat inflation in the wake of the FED's seven rate hikes in 2022. This is significantly different from the beginning of 2022 when the majority of policymakers conceded they were mistaken in thinking the high inflation of 2021 would quickly decline but still insisted they could control it by tightening the purse strings.

Although the tightening of monetary policy is shown to be on the correct track, the Fed's fight against inflation is still facing many problems due to the growth of jobs and salaries, which can worsen inflation. Chairman Jerome Powell takes a hawkish approach, but he is correct to be cautious and leaves the door open to perhaps terminating rate increases in 2023. Because of this, economies have not been able to announce with confidence that inflation is under control.

Monetary policy trend

We recall the ECB's caution at the end of 2021 when its President Christine Lagarde stated that the prerequisites for a rate hike were "extremely unlikely to be achieved next year" (i.e 2022). However, the ECB hiked rates significantly and quickly in reaction to record inflation in 2022. In addition, despite the recession warnings, the ECB appears to be deploying monetary tightening to address financial vulnerabilities and inflation.

The forecast of the policy tightening roadmap of major central banks in 2023 has been made clearer by new research from Berenberg Bank, which was published in mid-December 2022. As a result, during its first three policy meetings in 2023, the FED is predicted to continue raising interest rates by 25 basis points each, reaching a peak of 5–5.25%.

With the ECB, Berenberg anticipates that interest rates will rise by 50 basis points on March 16, 2023, following a 50 basis point hike at its meeting on February 2, 2023. This increase will raise the benchmark refinancing rate for European Union banks to 3.5%.

While this is going on, Berenberg predicted that the Bank of England (BoE) will increase interest rates by 25 basis points in February 2023, reaching a peak of 3.75%. The bank will then reduce interest rates by 50 basis points before lowering them once again by 25 basis points by the end of 2024, following the same pattern as the ECB in that year.

Can the State Bank of Vietnam (SBV) avoid following the main global central banks' pattern of raising interest rates in that way? Regrettably, it won't. But we can prepare for this reality and have a flexible strategy. Also keep in mind that, although it is an administrative regulation, the SBV has taken measures to carefully monitor the interest rate increases of commercial banks at the end of 2022. The economic sectors can adapt better after the interest rate level is fixed.