ISTANBUL
Major central banks worldwide left their policy rates unchanged in their first monetary policy conferences of 2024, as “dovish” expectations came to the fore in the new year after nearly two years of “hawkish” policies in most global economies.
While the negative effects of the pandemic on production and supply chains, coupled with rising geopolitical risks, led to an increase in inflation globally, including in developed countries, it was emphasized that the “hawkish” policies have ended in the recent conferences of central banks.
As the “dovish” pricing strengthened around the world towards the beginning of the year to start in March, it lost strength with the policy texts announced by the banks and the expectation that major central banks would start interest rate cuts later than market forecasts became popular.
US economy not slowing down
The Fed kept the policy rate unchanged, in line with expectations, at a 23-year high of 5.25% – 5.50% after a two-day Federal Open Market Committee (FOMC) conference.
In a recent statement, the Fed said that recent indicators suggest that economic activity is expanding steadily, adding that employment gains have slowed since early last year but remain strong.
Following the policy decisions, Fed Chairman Jerome Powell said FOMC members believe the policy rate is likely at its peak and it would be appropriate to start rate cuts in 2024 so long as the economic situation continues to be within expectations.
In light of these developments, the probability of the Fed’s first rate cut in March before Powell’s statements was at 53%, though it fell to 35% after, with the bank estimated to start cutting interest rates with a 92% probability at the May meeting.
As for the Bank of Canada, it kept its policy rate unchanged at 5%, the highest level in the last 22 years, in line with expectations.
The bank’s recent statement emphasized the continuation of monetary tightening, noting that the global economic growth has slowed with inflation, gradually decelerating in most economies, and that the economic growth in Canada has been stalled since mid-2023, and that it is likely to remain near zero until the first quarter of 2024.
Europe dealing with inflation, recession dilemma
The European Central Bank (ECB) left all three key policy rates unchanged last week as key economic data releases in Europe led to continued uncertainty.
Christine Lagarde, President of the ECB, stated that the short-term economic indicators remain weak, emphasizing that the economy will see an improvement in the medium term, with the labor market also remaining strong.
Lagarde added that the general downward trend in inflation rates in the eurozone continues and that the restrictive monetary policy keeps having a comprehensive impact on the real economy.
As for the Bank of England (BoE), the bank kept its 15-year high policy rate unchanged at 5.25%, which is within expectations.
The bank is not yet at a point where it can take a step to cut the policy rate, said Andrew Daily, Governor of the BoE, adding that he would not like to make speculations on a rate cut.
Bailey noted that the bank needs more evidence to feel confident that inflation will go down to the 2% target and sustainably remain at that level.
Analysts say the BoE is estimated to be one of the last central banks to start interest rate cuts.
Asian central banks leave interest rates unchanged
Investors keep their eyes on data from Chinese and Japanese central banks, as the two countries are Europe’s major trading partners.
The People’s Bank of China (PBoC) left policy and lending rates unchanged, whereas the Bank of Japan (BoJ) kept its monetary policy as is.
The PBoC cut its reserve requirement for banks and credit institutions by 50 basis points.
As for the BoJ, the bank left its policy rate unchanged at minus 0.1%, and its yield curve control regime was as is, but it signaled for the first time that rate hikes could start soon in the minutes of Thursday’s meeting.
Looking at the Bank of Korea left its benchmark lending rate as is for the eighth consecutive time, and it kept its interest rates at 3.50%, in line with expectations.
The bank stated that it will maintain its monetary policy to stabilize consumer price inflation at the target level in the medium-term perspective while monitoring economic growth and taking financial stability into account.
Turkish Central Bank to continue quantitative tightening
Türkiye’s economic administration, which took office in June, has taken many monetary policy steps, especially in the fight against inflation.
The Turkish Central Bank (TCMB) raised its policy rate from 8.5% to 45% since June as it began tightening.
The TCMB increased its policy rate yet again by 250 base points last week, and in a statement, the bank said that “the committee assessed that the level of monetary tightening required for disinflation has been reached” and that the level reached will be maintained “as long as necessary.”
Analysts say that the rate hike process may have been completed, but the TCMB may maintain its current tight monetary policy until there is a significant slowdown in inflation, and the steps taken by the economic administration are welcome in the markets as part of the fight against inflation.
“The monetary transmission mechanism will continue to be supported by macroprudential measures despite the possible volatility in credit supply and deposit rates,” said the bank in the summary of its Monetary Policy Committee released on Thursday.
