HONG KONG: Investors are betting on the fastest pace of interest-rate hikes since 2010 across the world’s biggest developed markets, pressuring policy makers who want to slow inflation without crash landing their economies.

       That’s the backdrop to this week’s meetings of central bank chiefs and finance ministers from the Group of 20 nations, who hold virtual and in-person discussions in Jakarta today and tomorrow, their first gathering of the year.

       It’s a remarkable turnaround from when they last met in October, a period when Federal Reserve (Fed) chairman Jerome Powell was still describing inflation as “transitory” and markets were pricing in at most two Fed rate increases this year.

       Now, six Fed hikes are priced in. And across G-10 economies, swaps futures show traders expect the average central bank rate to be one percentage point higher in a year, the steepest projected pace of tightening since January 2010, according to Bloomberg calculations.

       This pivot leaves officials struggling to manage expectations amid slowing growth, threats of war, surging oil prices and a pandemic that’s now into its third year. The People’s Bank of China governor Yi Gang yesterday cautioned that emerging markets, already hit hard by the pandemic, are vulnerable to tightening financial conditions.

       “Central banks from advanced economies should continue to enhance market communication,” Yi told a virtual panel during a G-20 side event. “Meanwhile, emerging markets should improve their resilience. This is where regional financial cooperation has a key role to play.”San Francisco Federal Reserve president Mary Daly told CBS on Sunday that it’s paramount for the central bank to be measured and data-dependent as it starts lifting interest rates to ensure stability after United States inflation hit its highest since 1982.

       European Central Bank President Christine Lagarde has warned that a rushed tightening would harm the eurozone’s rebound from the pandemic. The Bank of England has lifted rates twice in recent months, but governor Andrew Bailey has cautioned the outlook is clouded by uncertainty.

       In Japan, where inflation remains largely dormant, the central bank undertook an unlimited bond purchase operation in recent days to anchor yields and push back against traders testing its super easy policy mix.

       And China’s central bank on Tuesday stepped up support for its slowing economy by pumping in cash via policy loans for a second straight month. Other emerging economies, including Brazil and Russia have been aggressively raising rates.

       “It is important that the market appreciates the nuances in the wide divergence, in not only the headline inflation rates across the various economies but the composition and the underlying contexts being so different,” said Stephen Jen, who runs Eurizon SLJ Capital, a hedge fund and advisory firm in London. “At the G-20 meeting, I think this theme will likely come through.”

       Meanwhile, some market strategists are even touting “currency wars in reverse” as governments prefer stronger exchange rates to ward off imported inflation.

       Taken together, it’s clear the global policy outlook is far from uniform – a challenge for finance ministers and central bank chiefs tasked with pulling together a communique of shared goals at this week’s meeting.

       For those markets where higher rates are forecast, pricing also shows that conditions could change as borrowing costs climb. Treasury yield curves have flattened toward pre-pandemic lows, signalling investors expect rate hikes will be aggressive enough to risk souring the medium-term growth outlook. — Bloomberg