Global central bankers ready for US rate hike - Reuters

A number of central banks around the world are ready for a US interest rate hike this month. Among them are Mexico, India, South Korea, Indonesia, and Japan.

Speaking to Reuters during the global central banking conference in Jackson Hole, Wyoming last week, officials said it was about time the Federal Reserve hiked interest rates to bring about certainty in the US economy.

"If the Fed tightens, it will be due to the fact that they have a perception that inflation is drifting up, but more important that unemployment is falling and the economy is recovering," said Agustin Carstens, Mexico's top central banker. "For us, that is very good news."  

The coming rate hike, which has been expected for months now, would be America's first in nearly a decade. It would require other central banks to make adjustments in their own monetary policies, as it could lead to capital outflows and changes in commodity prices.

But overall, St. Louis Fed President James Bullard said, a rate hike would work to the advantage of smaller economies. "From their perspective a tightening move by the Fed might be helpful to weaken their currency and help them do what they want to do."

But the People's Bank of China and the International Monetary Fund say it would be unwise for the Fed to tighten policy at this time when the global economy is unstable.

Th US central bank is holding a key policy meeting on September 16-17, and there is a possibility a decision to raise interest rates would be reached during the gathering, although officials are taking a wait-and-see attitude amid market volatility. "It's early to tell," Stanley Fischer, vice-chairperson of the Fed's Board of Governors, told CNBC. "We're still watching how it unfolds."

Fed officials are taking into account several factors in deciding whether to raise the benchmark overnight lending rate. Among them are the movements in the stock market, inflation, and the monthly jobs report to be released Friday.

They are also looking closely at developments in the world's second-biggest economy, China, whose currency devaluation a few weeks ago surprised investors, triggering rout in markets around the world. The Fed's policy committee "does not like to move right in the middle of a global financial storm," said Bullard.

Dreading the prospect of higher credit costs in the world's biggest economy, investors are hoping for a delay in the rate hike. US interest rates have been near zero since the 2008 financial crisis.

Based on overnight indexed swap rates, US traders are betting there would be a 35% chance of a rate hike in September, and a 77% chance in December.