Unsurprisingly, the Federal Reserve announced a 0.25% rate hike on February 1, and the U.S. federal prime rate is now 4.50% to 4.75%. This is the Fed’s eighth rate hike since March 2022.
The Fed believes that inflation, although easing, is still at a high level, and the Fed still needs more evidence to determine that inflation is on a sustained downward trajectory. The Fed’s focus is not on short-term trends, but on the continuing changes in broader financial conditions.
The general expectation is that after raising rates to a high of 5% to 5.25%, the Fed will pause and then may begin to lower rates.
The Fed continues to raise interest rates, which will force national banks to keep pace with the rate hikes as well. After announcing a pause in January to observe the market reaction to previous rate hikes, economists are now predicting that the National Bank will choose to raise rates by 0.25% in March.
If the NB raises rates by 0.25% in March, our overnight policy rate (OPR) will be 3.00% p.a. This would also mean that borrowers would have to take on higher monthly loans, while time deposit depositors could also enjoy higher interest rates.
