Major Central Banks Set to Shift Monetary Policies in Different Directions, Analysts Say

The Changing Course of Central Banks

Analysts anticipate significant changes in the monetary policies of major central banks in the coming months. The U.S. Federal Reserve is expected to enact its first rate cut in June, with a projected 25 basis point reduction. Conversely, the European Central Bank is also anticipated to commence rate cuts in June due to easing euro zone inflation and stagnant economic growth. Moreover, the Bank of England is predicted to be among the last to initiate the unwinding of its tight monetary policy, with a potential cut forecasted for August.

Furthermore, Goldman Sachs has adjusted its projections for rate cuts, pushing them back to June and suggesting the possibility of five 25 basis point cuts by the end of the year, contrary to the market consensus of three.

Swiss National Bank's Potential Rate Cut

Market expectations indicate that the first G10 central bank to implement rate cuts might be the Swiss National Bank (SNB). The market currently prices in a 60% chance of a 25 basis point cut in March, which would decrease the SNB's key rate to 1.5%. This speculation is supported by a significant decline in Swiss headline and core inflation, falling to 1.3% and 1.2% respectively in January.

Capital Economics analysts highlighted that this substantial decrease in inflation is likely to prompt policymakers at the SNB to cut the policy rate from 1.75% to 1.50% at their next meeting in March.

The Bank of Japan's Potential Shift

Conversely, the Bank of Japan (BOJ) is considering the opposite move as most major central banks. Despite years of aggressive tightening to combat rampant inflation, the BOJ is contemplating a shift away from its negative interest rate and yield curve control policies. The country's core inflation rate, excluding food and energy, has fallen to 2% year-on-year in January, indicating a potential sustainable return to ultra-low inflation.

According to analysts, there is a significant expectation for the BOJ to end its eight-year stretch of negative interest rates in April. The potential rate hike would mark Japan's first in 16 years, signifying a pivotal shift in the central bank's policy.