Skip navigation Scroll to top
Scroll to top

LGT Navigator: Markets prepare for a more restrictive monetary policy

December 17, 2021

After the US Federal Reserve Bank forced its departure from the ultra-expansive monetary policy, the British and Norwegian central banks yesterday already announced a first interest rate hike. Meanwhile, the European Central Bank as well as the Bank of Japan and the Swiss National Bank stuck to their previous course. However, ECB chief Lagarde conceded that inflation in the eurozone could turn out to be higher in the next few years than the projections, which have already been raised significantly, suggest.

Markets prepare for a more restrictive monetary policy
Bank of England, London

After the initial reaction on the international stock markets to the more restrictive stance of the Federal Reserve was surprisingly positive, interest rate concerns put pressure on technology stocks in particular on the New York Stock Exchange yesterday. While the Dow Jones Industrial and the broad S&P 500 still held up quite well, the Nasdaq indices posted losses of more than two percent. In Asia, some of the major stock indices also trended in negative territory at the end of the week. For example, the Tokyo Stock Exchange lost almost two percent today. 

Bank of England also tightens the screw

Britain's central bank raised its key interest rate by 15 basis points to +0.25%. This, after the British inflation rate reached +5.1% in November, the highest level in ten years. The decision was made with a clear majority of 8:1 vote. Whether further interest rate hikes will follow remains unclear at present, as the ongoing pandemic is causing a high degree of uncertainty. The mood of British companies deteriorated significantly in December. The IHS Markit purchasing managers' index fell sharply by 4.4 points to 53.2, its lowest level in ten months.

Bank of Japan remains loose and adjusts its corona support

As widely expected, the Bank of Japan left its monetary policy unchanged and confirmed its short-term interest rate target at -0.1%, and the target for ten-year bond yields at 0%. However, Japan's central bank is adjusting its pandemic financial assistance. While scaling back corporate bond purchases to support large companies, it extended the aid program for smaller firms by six months.

ECB sticks to its course, but sees upside risks in inflation outlook

As expected, the European Central Bank (ECB) is letting its Pandemic Emergency Purchase Program expire next year. Bond purchases, however, remain a component of ECB policy. For example, the central bank will increase the purchase volume of the APP program from the current EUR 20 billion per month to EUR 40 billion in the second quarter of 2022. In Q3, bonds are to be purchased in the amount of EUR 30 billion per month and reduced again to EUR 20 billion from October 2022. The ECB kept the key interest rate at the record low of zero percent. In its forecasts presented yesterday, the ECB expects inflation to be significantly higher in some cases this year and next. The inflation rate should be +2.6% this year (previous forecast +2.2%) and rise to +3.2% next year (previously +1.7%). In 2023, however, the ECB then expects the inflation rate to fall to +1.8% (previously +1.5%). The last inflation rate in the euro zone in November was +4.9% – in Germany even +5.2%.

Meanwhile, corporate sentiment in the eurozone deteriorated significantly at the end of the year against the backdrop of the pandemic. The Purchasing Managers' Index fell to 53.4 points in December from 55.4 points in the previous month – the lowest level in nine months. According to IHS Markit, sentiment in the service sector deteriorated particularly sharply.

Swiss franc keeps the SNB on the ground

As expected, the Swiss National Bank (SNB) is sticking to its expansionary monetary policy and maintaining its negative interest rate of -0.75%. Although the SNB revised its growth and inflation forecast slightly upward, the continued strength of the franc is keeping the central bank virtually on the ground and a turnaround in interest rates is not yet in sight. The SNB expects a further recovery of the Swiss economy and slightly higher inflation in 2022 of +0.6% (previously +0.4%).

Norway's central bank with further interest rate hike

The Norwegian central bank raised its key interest rate for the second time since the start of the corona crisis by 25 basis points to +0.5%. The move had been expected in the markets. Norges Bank also held out the prospect of further rate hikes.

Turkish central bank cuts key interest rate again

Although Turkey has an inflation rate of around 21%, the central bank again eased its key interest rate by another 100 basis points to 14.0%. At the same time, however, the Turkish central bank held out the prospect of an end to key rate cuts for the time being.

Economic Indicators December 17

MEZ Country Indicator Last period
08:00 GE Producer Prices (November, y/y) +18.4%
09:00 AUT Consumer Prices (November, y/y) +4.1%
10:00 GE Ifo Business Climate (December) +95.5
11:00 EZ Consumer Prices (November, m/m) +0.8%
11:00 EZ Consumer Prices (November, y/y) +4.9%
11:00 EZ Core Consumer Prices (November, y/y) +2.6%
11:30 RUS Bank of Russia monetary policy announcement +7.5%


Earnings Calender December 20

Country Company Period
US Nike Q2
US Micron Technology Q1


LGT helps you make informed investment decisions

All about global economic and market trends at a glance

Subscribe to LGT's research newsletters

You can also follow us on Facebook or LinkedIn – or visit MAG/NET and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail:
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.