2024-03-24 18:54:10
Keeping inflation under control without harming economic growth is the complex equation facing every economy’s central bankers.
For this purpose, they have various tools at their disposal, but the most powerful of them is undoubtedly the level of the main interest rates on various operations, BTA reports.
In 2021, against the background of rising inflation and uncertainty about the development of the COVID-19 pandemic and its effects on the country’s economy, the first of the major central banks in the world, the Bank of England (Bank of England) decided to raise its interest rate (from 0.1 to 0.25 per cent, at 5.25 per cent currently).
This Thursday, the Swiss National Bank (Swiss National Bank) became the first to decide to lower its key rate from 1.75 to 1.50 percent, after announcing that inflation was now sustainably in the range of 0-2 percent, putting a kind of end of the so-called global interest rate tightening, which was preceded by the highest inflation in over 40 years.
Over the past 27 months, US rates have risen from 0-0.25 percent in May 2022 to 5.25-5.5 percent currently. In June 2022, inflation in the world’s largest economy reached a record high since the 1980s of 9.1 percent.
In the Eurozone, the European Central Bank (ECB) increased all three of its main interest rates, from negative as of July 2022 on some of the operations (-0.5 percent on the deposit facility, 0 percent on the main refinancing operations and 0.25 on percent on the marginal credit facility) they reached in September 2023 record values since the foundation of the monetary union (respectively 4 percent on the deposit facility, 4.5 percent on the main refinancing operations and 4.75 on the marginal credit facility). In March this year these levels were maintained for the fourth time in a row.
The course towards lower prime rates
Central banks around the world are on the starting line (or have already started, in the case of Switzerland) to cut interest rates, according to a Reuters analysis. However, the way down will look different and will not be accompanied by “fireworks” like the way up, which was marked by sharp moves announced at successive meetings.
According to analysts’ estimates and according to the requests of the central banks themselves, the reduction of rates will be carried out in the smallest possible steps with periodic pauses because of fears that ultra-low unemployment could reignite inflation, which is still above target levels.
This week, the US Federal Reserve Board left interest rates unchanged, although it indicated that it would start cutting them this year.
“We believe that our interest rate is likely at its peak for the current monetary policy cycle and that if the economy generally develops as expected, it will likely be appropriate to begin cutting rates at some point this year,” UFR President Jerome said. Powell.
According to analysts, Powell’s words indicate an intention for a “dovish policy” despite the Federal Reserve’s increased forecasts for economic growth.
Days after the ECB’s meeting at the start of the month, the bank’s president, Christine Lagarde, said a decision would be made in June on whether interest rates would begin to fall. The governor of the German central bank “Bundesbank” Joachim Nagel yesterday also indicated that it is possible to lower the interest rates to start in June, without that it means that these actions will continue at the same pace until the end of the year.
It is the slowdown of the German economy that may prove to be an additional stimulus for lowering interest rates, and that is why the governor of the “Bundesbank” is among those who clearly name a more specific period for lowering rates by the ECB.
“We are not yet at the point where we can cut rates, but things are moving in the right direction,” Bank of England Governor Andrew Bailey said in a written statement.
The Bank of England now expects inflation to fall below its 2 per cent target in the second quarter of the year (the indicator peaked at 11.1 per cent in October 2022 – ed) due to the impact of Finance Minister Jeremy’s decision Hunt to freeze fuel duties again this month.
According to investors, the FFR, ECB and Bank of England are expected to cut rates by just 75 basis points each by the end of this year, in three steps of 25 basis points each – small moves compared to a steep rise in interest rates in 2022.
However, these banks are not the first to cut interest rates. Some emerging economies such as Brazil, Mexico, Hungary and the Czech Republic have already taken steps to cut interest rates, but financial markets are watching major central banks whose decisions have an excessive impact on financial instruments.
Against this background, it appears that the “green light” to cut interest rates has been given by falling inflation in both the US, Switzerland and the UK, as well as concerns about Germany’s economic growth, which should enter into the new calculations of the key equation for central banks.