Global markets experienced a dynamic “central banks week” this week, with decisions on monetary policy from central banks including the Federal Reserve (Fed) of the United States, as well as the Bank of Japan (BoJ), Bank of England (BoE), Swiss National Bank (SNB), and the Central Bank of the Republic of Turkey (TCMB) taking center stage in the markets.
This week, the interest rate decisions of many central banks worldwide were closely followed. While the interest rate decisions of some central banks were in line with expectations, others surprised the markets with their monetary policy decisions.
BoJ, which made changes in its monetary policy, became one of the most talked-about central banks of the week. With its first interest rate hike in 17 years, BoJ became the last central bank among the world’s leading central banks to abandon its negative interest rate policy.
As the effects of the Bank’s withdrawal of negative interest rates on global capital flows and market stability were evaluated, concerns arose about the potential for rising wages and prices in Japan to lead to a potentially dangerous inflationary spiral.
While the interest rate decisions of banks like the Fed and BoE were in line with market expectations, SNB unexpectedly reduced its policy rate by 25 basis points, becoming the first central bank in developed countries to lower interest rates. TCMB also surprised the markets by raising its policy rate.
The monetary policy decisions announced by central banks worldwide this week are as follows:
Bank of Japan BoJ raised interest rates for the first time in 17 years following significant wage increases in large corporations, ending its negative interest rate policy initiated in 2016. While raising short-term interest rates from minus 0.1 percent to a range of 0 to 0.1 percent, the Bank also ended yield curve control for 10-year Japanese government bonds.
President Kazuo Ueda spoke of a transition to “normal monetary policy” targeting short-term interest rates, like other central banks.
Visible increases in wages in Japan and wage increases at the highest level in 33 years, seen as a condition for raising interest rates, had raised expectations that BoJ would end its negative interest rate policy. In addition, the country’s inflation reaching 2.2 percent annually in January had also created room for BoJ to end its negative interest rate policy.
Federal Reserve (Fed) Fed kept its policy rate unchanged within expectations at the highest level in 23 years, at 5.25-5.50 percent. According to the statement from the Fed, recent indicators indicate that economic activity is expanding at a solid pace.
The statement noted strong employment gains and continued low unemployment rates, while inflation had fallen throughout last year but remained high.
The statement indicated that the Federal Open Market Committee (FOMC) believes that risks to achieving maximum employment and inflation of 2 percent over the longer term have moved to a better balance.
The statement also highlighted the uncertainty of the economic outlook and the continued extreme caution against inflation risks, stating that the target range for the federal funds rate would be kept at 5.25-5.50 percent.
Fed’s forecasts suggested that there is still a possibility of three interest rate cuts by the Bank this year.
Bank of England BoE kept its policy rate unchanged at 5.25 percent, in line with expectations. According to the statement from the Bank, the Monetary Policy Committee has concluded that monetary policy should remain restrictive for a long period until the risk of inflation settling above the 2 percent target is eliminated, a view held since last autumn.
BoE Governor Andrew Bailey, in his assessment of the decision, stated, “We are not yet at a point where we can lower interest rates, but things are moving in the right direction.”
Swiss National Bank SNB unexpectedly lowered its policy rate by 25 basis points to become the first central bank in developed countries to lower interest rates. According to the statement from the Bank, the policy rate was lowered by 0.25 basis points to 1.50 percent.
Expectations were that SNB would keep its policy rate at 1.75 percent. The surprise rate cut was the first rate cut by SNB in nine years.
Analysts had expected SNB to wait until its next meeting in June to lower interest rates.
Additionally, SNB became the first central bank in developed countries to lower interest rates to counter inflationary pressures following the COVID-19 pandemic.
Central Bank of the Republic of Turkey The Monetary Policy Committee (MPC) of the TCMB increased the policy rate, the one-week repo auction interest rate, by 500 basis points to 50 percent.
In the announcement regarding interest rates from the Bank, it was stated that the Committee, chaired by Fatih Karahan, decided to make changes in the operational framework and set the Central Bank’s overnight borrowing and lending rates with a margin of +/- 300 basis points compared to the one-week repo auction interest rate.
The announcement stated, “The determined stance in monetary policy, balance in domestic demand, real appreciation in the Turkish lira, and improvement in inflation expectations will reduce the main trend of monthly inflation and disinflation will be achieved in the second half of 2024.”
Foreign investment institutions, like experts, emphasized that the interest rate decision and the MPC text showed how serious and determined the Bank is in fighting inflation. The interest rate decision, evaluated as “surprising,” “hawkish,” and “the Central Bank is ahead of the market,” was seen as a very important step in terms of the disinflationary process.
These are some of the monetary policy decisions announced by central banks around the world this week.
source: aa.com.tr/ prepared by Melisa Beğiç