what to expect from central banks

Rich week on the monetary policy front, since the major central banks will announce their decisions and strategies in a very uncertain phase of the economy, given the geopolitical tensions that influence it and the transition from a situation of hyperinflation to a phase of growth prices in line with targets.
All except the ECB which anticipated the trend last week, confirming the expectation of a rate cut in June. This week, however, the monthly bulletin will clarify the underlying framework, on the basis of which the Board found itself making its decisions.

Bank of Japan: time is ripe for an end to negative rates

The first to decide this week will be the Bank of Japan which will announce its decisions on Tuesday. The time now seems ripe to put an end to the negative rate policy, also because the spring round of wage negotiations confirmed a 5.3% wage increase, which will increase inflationary pressures and force the central bank to put an end to the policy of negative rates. According to analysts, the decision could be taken already at this meeting and a rate increase of 0.1% is expected (rates are currently at -0.1%) which would bring the reference rate to zero.

FOMC ready to act without haste

The Federal Open Market Committee of the Federal Reserve will announce its decisions on Wednesday evening and, according to prevailing expectations, no news is expected on the subject of interest rates, only the observation that inflation continues to moderate and that the time for an interest rate cut, but no rush. According to analysts, no decisions are expected before June, but only the confirmation of the desire to proceed with a “normalization” of monetary policy and an approach linked to the outgoing data. Powell and the other members of the FOMC have in fact always declared that before proceeding with the reversal of monetary policy they would have liked to have a greater guarantee of inflation in line with the target and a greater balance between supply and demand for work.

It is likely that the Fed will opt for a rate cut in June: the US labor market is gradually weakening, although it remains resilient, but is not accelerating again,” notes Gero Jung, Chief Economist of Mirabaud Asset Management, noting that “growth of December and January payrolls has been revised significantly downwards – for a total of 167k – and making the past numbers less brilliant”.

“The reversal of central banks’ monetary policies coincides with the transition from deflationary to inflationary times. We don’t know what the time ahead of us will be like but we know that it will be very different from the decades that have just passed”, says Carlo Benetti, Market Specialist at GAM (Italia) SGR, adding that asset allocation will have to take into account the new financial conditions, inflation normalized, of the end of deleveraging in banks which was a deflationary factor”.

Bank of England follows the Fed

The British central bank, which meets on Thursday, will keep interest rates unchanged for the fifth consecutive time, aligning itself with the decisions of the ECB and the Fed, seeking clearer signals that wage growth and inflation are cooling. The markets currently do not anticipate any move on rates before August and then at most two more cuts by the end of the year.

Central Bank of Australia awaits tax cut

The Australian Central Bank is also taking its time announcing a rate cut. Policy should change direction starting from mid-year, thanks to an expansionary fiscal and monetary policy capable of supporting the economic recovery. The third phase of tax cuts will begin on July 1 and a move from the Reserve Bank of Australia is expected from September.

Swiss National Bank looks to the strong franc

The Swiss central bank will start cutting interest rates earlier than expected, also to weaken the Swiss franc, which confirms excessive strength against the dollar on the foreign exchange market to the detriment of foreign trade and the competitiveness of Swiss producers. A decision on rates is expected in June, when the Fed will also start a monetary easing cycle.