The cycle of tight monetary policy is coming to an end, and after nearly two years of consecutive interest rate hikes, which in some areas brought them to record highs, easing is expected to begin soon. As inflation decelerates, investors are closely watching the announcements of the relevant officials.

According to a recent report by the Economist Intelligence Unit, interest rates are expected to remain high this year, but there will be some mild decline compared to 2023. Exceptions to the path they followed in monetary policy over the past two years were China and Japan, although in the case of the latter a signal has already been given for a rate cut either next week or in April.

USA

The Fed chairman recently reiterated that he expects monetary policy to ease as long as inflation data is favorable. However, he avoided giving a clear timetable. Right now, the central bank’s preferred inflation rate stands at 2.4%, above the 2% target. Interest rates are set in a range of 5.25-5.5% and the markets are “betting” that the first reduction will take place in June by 25 percentage points.

Eurozone

Last week, the ECB kept its lending rate steady at a record 4%, signaling that cuts would not start until June. The central bank acknowledged that inflation is slowing faster than expected, so it lowered its forecast for the Eurozone from 2.7% to 2.3% this year, which is still above the 2% target.

Switzerland

Inflation in Switzerland rose to 1.2% in February from a year earlier, the lowest level in almost two and a half years. The data raised hopes for a first rate cut at next week’s meeting. At the moment, the benchmark interest rate stands at 1.75% and the inflation target is set between 0 and 2%. Markets are giving at least a 40% chance of a 25 basis point cut in March.

Canada

The governor of Canada’s central bank said a few days ago that it is still too early to consider the rate cut scenario. Inflation slowed to 2.9% in January on an annual basis. This is a significant drop from December’s 3.4% and falls within the central bank’s target of between 1% and 3%.

Turkey

The neighbour’s central bank, which in the past few months has made a 180-degree turn in its approach to monetary policy, kept the benchmark interest rate steady at 45% in February, thus closing the cycle of tightening after eight consecutive hikes. Inflation in the country now stands at 65% and many expect the rate to remain unchanged throughout 2024.

Japan

The case of Japan is peculiar, where the central bank is expected to raise interest rates unlike many other central banks in the world. In the coming weeks, he is set to raise interest rates for the first time since 2007, reversing the course of his unorthodox monetary policy. It is noted that the wage negotiation index is considered a key factor in achieving the 2% inflation target.

Who will make the first move?

As the chief economist at High Frequency Economics, Carl Weinberg, explained to CNBC, the first central bank to ease monetary policy is expected to be Canada’s, because inflation in the country excluding housing prices is just 1.7%. He also argued that all rates the central bank can control are below target.

Morgan Stanley said for its part that Asian central banks are only likely to taper after the Fed, as a strong dollar means most Asian currencies remain relatively weaker. Thus, the possibility of further deterioration in their value may create inflationary risks.

Source: moneyreview.gr