The Wind Shifts: Central Banks Reverse Interest Rate Policies in a Series of Moves

Several major central banks have begun a policy pivot this week. Currently, the market is carefully considering and evaluating what future developments will be like.

Perhaps the policy reversal of the world's leading central banks has officially begun. This week, Switzerland became the first major economy to cut interest rates and the Bank of Japan also raised interest rates for the first time in 17 years.

Markets are still trying to gauge when most of the world's influential central banks will begin easing the tightening monetary policies they have adopted over the past two years to rein in rising inflation. inflationary.

Bank of Japan (BOJ)

Japan is an exception, the country has maintained negative interest rates for 17 years to stimulate a sluggish economy and boost inflation. That experiment, along with its unique policies of yield curve control, finally ended this Tuesday.

As for wage increases after the spring wage negotiations, BOJ policymakers expect the new high wages will boost domestic demand, thereby creating momentum for inflation.

Tomoya Masanao, co-head of Pimco Japan, said the medium- and long-term impact of these changes could be more profound than what markets predict, and the key question is whether Japan's inflation rate will remain at its level. level after the Covid-19 pandemic.

"Even though the BOJ has emphasized its 2% inflation target, it will be difficult for the bank to maintain monetary policy long enough to achieve this goal," he said.

“The BOJ's medium-term policy adjustments will likely involve both balance sheet reductions and interest rate increases. Despite potential headwinds from the global recession and interest rate cuts from other major central banks, the BOJ remains poised to slowly but surely reduce its massive balance sheet. ”, he added.

Swiss National Bank (SNB)

On Thursday, the Swiss National Bank (SNB) unexpectedly cut interest rates by 0.25 percentage points to 1.5% and said inflation will likely remain below 2% in the future. close hybrid.

The SNB also forecasts inflation in the country to reach 1.4% by the end of 2024, 1.2% in 2025 and 1.1% in 2026. The central bank also said the strength of the Swiss franc is one of the The reason why this agency decided to relax the policy.

US Federal Reserve (FED)

On Wednesday, the US Federal Reserve decided to keep the interest rate range stable at 5.25%-5.5%, as well as forecast three interest rate cuts in 2024, with each reduction is 25 basis points.

According to CME Group's FedWatch tool, the market predicts a possibility of up to 70% that the first cut will take place at the Fed's June 11-12 meeting.

Rate cut expectations remain despite forecasts for higher growth, lower unemployment and slightly higher-than-expected core inflation.

Bank of England (BoE)

On Thursday, the Bank of England also kept interest rates stable at 5.25% - the highest level in the past 16 years, thereby eliminating all predictions of a cut this time in the context of inflation. decreased but still remained high.

In a statement on the same day, BoE Governor Andrew Bailey emphasized that the British economy has not yet reached the threshold to cut interest rates, but everything is still going on schedule.

The future will be like?

This is an important week for global financial markets. Currently, everyone is carefully considering and assessing what the future will be like.

As for Japan, many experts believe that the long-term impact of the country's positive interest rate policy could be very profound. It could affect mortgage interest rates and US government finances. Japan is the largest overseas holder of US Treasury bonds. The country is also a major lender abroad and a powerful exporter.

Increasing interest rates higher could also affect lending rates of private banks, affecting capital mobilization by small and medium-sized companies in Japan. Besides, if the Yen appreciates due to increased long-term interest rates, Japanese export businesses will be affected.

On the other hand, the US Presidential election in November this year will also have a big impact. According to CNBC, Mr. Donald Trump publicly stated that if elected President, he would impose additional tariffs on goods from China, possibly at 60% or higher.

“That could cause inflation to increase in the US, forcing the Fed to raise interest rates again. It will also have some impact on the Japanese economy,” said Keiji Kanda, senior economist at Daiwa Research Institute.

As for the UK, the country's economy fell into a technical recession in the fourth quarter of 2023 and experienced two years of stagnation. Therefore, the country's central bank is forced to balance between bringing inflation back to 2% and avoiding pushing the economy into a prolonged recession.

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