With inflation loosening its grip in most economies, investors are closely monitoring interest rate decisions as markets anticipate a series of rate cuts in 2024. Economists are expecting a mild rollback of rates later in the year, according to a recent report by the Economist Intelligence Unit. While rates in most economies are expected to remain elevated through 2024, there is a general consensus that there will be some easing towards the end of the year. This trend is largely driven by central banks’ efforts to curb inflation, with many having implemented significant policy rate hikes since early 2022.
While most economies are on a path of tightening monetary policy, China and Japan are notable exceptions. Beijing has started to ease its rates slightly, and the Economist Intelligence Unit predicts that the Bank of Japan will exit its negative interest rate policy in the second quarter of this year. On the other hand, the U.S. Federal Reserve, led by Chair Jerome Powell, has hinted at potential rate cuts later in the year if inflation signals align. The Fed’s current preferred gauge of inflation is at 2.4%, slightly above its 2% target rate.
The European Central Bank recently held its policy rate at a record high of 4%, signaling that it does not plan to cut rates before June. The ECB acknowledged that inflation was easing faster than anticipated and lowered its annual inflation forecast from 2.7% to 2.3%, while maintaining a 2% inflation target. In Switzerland, inflation has eased, leading to speculation that the Swiss National Bank could trim interest rates. The SNB’s current policy rate is at 1.75%, and there is a possibility of a rate cut in March.
In Canada, the Bank of Canada opted to keep rates unchanged for the fifth consecutive meeting in March. Meanwhile, Turkey’s central bank ended its tightening cycle in February, keeping its interest rates steady at 45%. Economists suggest that the Turkish central bank may cut its policy rate towards the end of the year. The Reserve Bank of Australia also maintained its rates in February at a 12-year high of 4.35%, with predictions of rate cuts starting in August.
In Asia, central banks are taking a cautious approach. South Korea’s central bank kept rates steady at 3.5%, citing premature discussions of rate cuts while inflation remains above the target level. Analysts predict that the Bank of Japan may raise rates this year instead of cutting, with a potential shift from its negative rate policy by April. Indonesia’s central bank is also expected to lower its benchmark rate by the end of 2024, aligning with global trends.
Overall, the global interest rate landscape in 2024 is characterized by a mix of tightening and easing policies across different economies. While some central banks are considering rate cuts to combat inflation, others are focusing on maintaining stability amidst changing economic conditions. As tensions in the global economy persist, central banks continue to play a crucial role in shaping monetary policy to support growth and stability.
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