According to the Zhitong Finance APP, interest rate cuts will become one of the most important themes in the global market in 2024. After implementing the most aggressive tightening policies in decades in 2022 and 2023, major central banks around the world are preparing to begin relaxing monetary policies as inflation continues to fall. Bloomberg Economics' comprehensive measure of global interest rates shows that global interest rates have fallen by 128 basis points in the past year, mainly led by emerging economies, with Brazil, the Czech Republic, and some central banks already beginning to cut interest rates.

The Federal Reserve will lead the policy shift of developed economies. Last month, the Federal Reserve released a dot matrix showing a 75 basis point rate cut this year, exceeding market expectations at the time. The European Central Bank and the Bank of England are not yet willing to signal a rate cut, but the market expects that the European Central Bank may cut interest rates for the first time in June. The market is betting that the Bank of England will also cut interest rates in June. The Bank of Japan, which is still implementing an ultra loose monetary policy, is expected to eventually exit its negative interest rate policy and shift towards tightening.

Bloomberg Economics Chief Economist Tom Orlik said, "As inflation falls back to target levels and tightening policies only have a slight impact on economic growth, major central banks are looking forward to victory. However, the reality is that monetary policy has little to do with the pressure of price increases after the pandemic, and cannot bear too much responsibility in the process of price declines. One conclusion is that the scope of central bank tools is narrow, while the sources of inflation risk are broad

The plan to cut interest rates depends on the sustained slowdown of inflation. Skeptics warn that inflation is still some distance away from the central bank's target, and policies need to remain tight. Nevertheless, overall and core inflation data continue to cool down, with commodity prices leading the decline and service industry prices expected to follow closely, allowing officials to begin taking measures to alleviate the burden of borrowing costs on households and businesses.

The following is Bloomberg Economics' outlook for major central banks worldwide.

1、 Group of Seven (G7)

1. The Federal Reserve

The federal funds rate is currently in the range of 5.25% -5.5%. Bloomberg Economics predicts that the upper limit of this interest rate range will drop to 4.25% by the end of this year, which means the Federal Reserve is expected to cut interest rates by 125 basis points this year. Traders tend to favor the Federal Reserve's six 25 basis point rate cuts this year, and expect the first one to be likely in May.

Most Federal Reserve officials expect to cut interest rates this year in response to declining inflation. But they also emphasized that the Fed's actions depend on further developments in prices and will be guided by data.

The dot matrix released by the Federal Reserve last month showed that policymakers expect a 75 basis point rate cut in 2024. Federal Reserve Chairman Powell and his colleagues emphasized that the Fed will act with caution, indicating that they are not in a hurry to take action. Powell stated at last month's press conference that it is too early to declare victory, but he also acknowledged that the Federal Open Market Committee (FOMC) has discussed when to begin easing policy.

Economist Anna Wong said, "The Federal Reserve has reached the end of its rate hike cycle. According to some key indicators, the core inflation rate is expected to approach the Fed's 2% target by March this year, and the Federal Open Market Committee (FOMC) may respond to the slowdown in economic growth and rising unemployment rate by cutting interest rates for the first time. We expect the Federal Reserve to cut interest rates by another 100 basis points in the remaining time, and by the end of 2024, the upper limit of the federal funds rate will be lowered to 4.25%

2. The European Central Bank

欧元区存款机制利率目前为4%，Bloomberg Economics预计该利率到今年年底将降至3.25%。交易员认为欧洲央行在3月首次降息25个基点的可能性为50%，但几乎一致认为欧洲央行今年将降息150个基点。

In sharp contrast to the Federal Reserve, European Central Bank officials are unwilling to discuss the possibility of interest rate cuts. Although inflation in the eurozone has fallen far beyond expectations, the rate of wage growth in the eurozone remains worrying, and it is unlikely to be certain whether this trend is cooling down before the second quarter of 2024.

At a time when the Eurozone economy may face its first recession since the pandemic, members of the European Central Bank's governing board have refused to support any imminent interest rate cuts, contradicting market bets that the central bank will cut interest rates in the coming months. The key now is whether the eurozone will experience a mild recession that can still be considered a soft landing, or whether the sustained chain reaction of the European Central Bank's unprecedented interest rate hikes will trigger a recession severe enough to change monetary policy prematurely.

Economist David Powell said, "The European Central Bank has ended raising interest rates. Potential inflation is declining, surveys show a significant deterioration in economic activity, and credit expansion is weaker than during the worst period of the euro crisis. Unless the economy is in a severe recession, the European Central Bank still needs time to determine if inflation is on the right track. We expect the first interest rate cut by the European Central Bank to be in June this year, but the risks are severe and tend to act early

3. Bank of Japan

The Bank of Japan is currently the only major central bank in the world still implementing a negative interest rate policy, with a policy rate of -0.1%. Bloomberg Economics predicts that the interest rate will rise to 0% by the end of this year.

For observers of the Bank of Japan, the most crucial question is when the bank will end its negative interest rate policy, rather than whether it will end. Bank of Japan Governor Kazuo Ueda successfully granted flexibility to the yield curve control (YCC) policy in his first year in office to cope with sudden increases in yields. The Bank of Japan will analyze a series of data to assess the stability of inflation trends.

The earthquake that occurred during Japan's New Year's Day has caused a few economists who expected the Bank of Japan to raise interest rates to postpone their expectations. The mainstream view is that the Bank of Japan will raise interest rates in April. The preliminary results of the spring wage negotiations in March this year are expected to be highly anticipated, as the Bank of Japan has clearly stated that this is one of the key factors in its pursuit of a virtuous cycle of wage inflation.

Economist Taro Kimura said, "The Bank of Japan has increased its communication efforts to prepare for the eventual introduction of YCC and negative interest rate policies. But the Bank of Japan is not in a hurry to take action, as wage and inflation data have not sent clear signals to convince the Bank of Japan that the 2% inflation target can be sustained. We expect the Bank of Japan to transition to the new framework in the second half of this year, most likely in July

4. The Bank of England

The current benchmark interest rate of the Bank of England is 5.25%, and Bloomberg Economics predicts that this rate will reach 4% by the end of this year. The market firmly believes that the Bank of England will cut interest rates by 25 basis points five times this year, and the first rate cut may be in June. Traders have also increased their bets on the Bank of England cutting interest rates as early as May, despite Bank of England Governor Bailey insisting that it is too early to consider a policy shift.

More and more people speculate that the Bank of England will be forced to abandon its stance of "maintaining high interest rates for a longer period of time" emphasized at last month's policy meeting. The Bank of England may lower its inflation expectations at its February meeting, as UK inflation in November was much lower than expected.

Although the UK may experience a mild recession in the second half of 2023, its growth prospects are starting to brighten. The Bank of England's new forecast may reflect market expectations of lower borrowing costs, slower inflation, and real wage growth. The Bank of England will also release its annual assessment of the medium-term growth potential of the economy in February.

Economist Dan Hanson said, "In recent months, the inflation outlook in the UK has significantly improved. We believe that the year-on-year increase in UK CPI will fall below the Bank of England's 2% target in the spring, which will provide ample room for the central bank to begin easing monetary policy. The first interest rate cut may be in May, and by the end of 2024, the interest rate will drop to 4%. ”

5. Bank of Canada

The current overnight loan interest rate in Canada is 5%, and Bloomberg Economics predicts that this rate will reach 4% by the end of this year. Traders' expectations for the Bank of Canada's interest rate cut in 2024 range from 100 basis points to 125 basis points, but they are confident in the pricing of the first rate cut in June.

Although Bank of Canada Governor Tiff Macklem has repeatedly stated that it is too early to discuss a rate cut, analysts and the market expect the Bank of Canada to begin cutting rates before the second quarter. The Bank of Canada kept interest rates unchanged for the third consecutive time last month, acknowledging economic stagnation but still opening the door for further rate hikes to prevent underperformance in core inflation.

With interest rates at their highest level in 20 years, how high debt households in Canada can continue to live remains a key consideration for the Bank of Canada. Canada's shorter term home mortgage loan extensions are faster than those in the United States, which economists believe is an important reason why the country's economy is more sensitive to interest rates.

However, Tiff Macklem may not be as inclined to declare victory as his American counterparts. At the beginning of 2023, the Bank of Canada suspended interest rate hikes to assess the impact of its rate hike actions, which prompted the market to immediately price and led to a resurgence of inflationary housing activity. This time, the Bank of Canada does not want to take the risk of repeating the same mistake.

At last month's policy meeting, the six members of the Board of Governors of the Bank of Canada increasingly agreed that interest rates are "strict enough" to achieve the 2% inflation target, indicating that the central bank's focus is shifting from "how high" borrowing costs should be to "how long". The Bank of Canada stated that before considering a rate cut, it needs to see clearer evidence that underlying price pressures will continue to ease.

Economist Stuart Paul said, "As the labor market cools down with broader economic activity, households and businesses will continue to feel pressure from rising prices and interest rates. Although Bank of Canada Governor Tiff Macklem has hinted that a policy shift is imminent, we expect interest rate cuts to begin in the second half of this year only after data shows that the 'last mile' towards the 2% inflation target can be achieved

2、 BRICS countries

Bloomberg Economics predicts that the People's Bank of China will moderately lower interest rates and bank reserve requirements. Economist David Qu said that the Chinese economy needs more policy support, and the central bank is prepared to continue providing support. He said, "We expect the People's Bank of China to resume interest rate cuts and lower bank reserve requirements in the first quarter of this year. The first interest rate cut may come as early as mid January

For India, Bloomberg Economics predicts that the Reserve Bank of India will cut interest rates by 100 basis points this year. Shaktikanta Das, the Governor of the Reserve Bank of India, stated that he hopes to see the inflation rate stabilize around the target of 4% in the long term before considering adjusting interest rates. However, predictions indicate that India's inflation rate will not remain at this level for a long time until 2024, and fluctuations in food prices may drive up inflation. The focus of the Reserve Bank of India has now shifted to ensuring that food prices do not spread to other sectors of the economy.

Since August last year, the Brazilian central bank has lowered borrowing costs by two percentage points. Most analysts believe that this loose cycle will continue until mid-2024. Members of the board of directors of the Brazilian Central Bank, led by Governor Roberto Campos Neto, have pledged to continue cutting interest rates by 50 basis points until March. Bloomberg Economics predicts that the Brazilian central bank will cut interest rates by 275 basis points by the end of this year. The overall inflation in Brazil has slowed down to within the tolerance range of the Brazilian central bank, and the closely watched core inflation is also slowing down. However, the Brazilian central bank still chose a gradual interest rate cut cycle, as most analysts believe that inflation will remain above the target of 3% by 2026.

The Russian central bank has more than doubled its key interest rate to 16% in 2023. Elvira Nabiullina, the Governor of the Russian Central Bank, stated last month that the tightening cycle may be coming to an end. But she also warned that "key interest rates will remain high for as long as possible until we determine a stable downward trend in price growth and inflation expectations." Bloomberg Economics predicts that the Russian central bank will cut interest rates by 400 basis points by the end of this year. Economists say that policy makers are still working hard to address inflation, with a focus on avoiding premature easing of monetary policy.

Bloomberg Economics predicts that the South African central bank will maintain interest rates unchanged at its two meetings in the first quarter. Although price growth will slow down by the end of 2023, inflation risk remains the biggest concern for South African central bank officials. Bloomberg Economics predicts that the South African central bank will only cut interest rates by 25 basis points by the end of this year. South African Central Bank Governor Lesetja Kganyago stated that the central bank will continue to assess the risks to the inflation outlook and is ready to take action at any time to ensure that the inflation rate returns to the midpoint of the target range of 3% to 6%.

3、 Emerging markets

Among the major inflation targeting central banks in Latin America, the Bank of Mexico is the only one that has not taken action, while many other central banks have begun to cut borrowing costs. However, Victoria Rodriguez, the Governor of the Central Bank of Mexico, stated that a rate cut may be implemented in the first quarter. However, the Mexican central bank expects that the inflation rate will not fall back to the target level of 3% before the second quarter of 2025, which means that any easing policies will be gradually implemented. Bloomberg Economics predicts that the Mexican central bank will cut interest rates by 175 basis points by the end of this year.

Despite the rapid and large-scale measures taken by the Indonesian central bank to initiate the post pandemic tightening cycle, it is expected that the bank will be more cautious when shifting towards loose policies. Bank of Indonesia Governor Perry Warjiyo stated that the central bank will not follow in the footsteps of the Federal Reserve, and added that the central bank will have a clearer assessment of its rate cuts in the second half of 2024. The inflation risks faced by Indonesia mainly include supply chain disruptions, dry weather, and sustained market fluctuations that may weaken the Indonesian rupiah and push up the cost of imported goods such as oil and rice. Bloomberg Economics predicts that the Bank of Indonesia will cut interest rates by 125 basis points by the end of this year.

Bloomberg Economics predicts that Türkiye's central bank will raise interest rates for the last time in January to end its aggressive tightening action. Analysts' overall expectation is that Türkiye's central bank will raise the benchmark interest rate to 45% (currently 42.5%). Economists predict that Türkiye's central bank will maintain this interest rate level before the third quarter, and the central bank will further tighten monetary policy through alternative tools such as bank supervision. However, Türkiye's local elections in March may still prompt Türkiye's central bank to start the easing cycle earlier than expected, because President Erdogan tends to obtain election support by providing cheap funds.

4、 Other central banks

The Bank of Korea is refuting speculation that it may follow the Federal Reserve's signal to adjust monetary policy earlier than expected. However, Rhee Chang yong, the Governor of the Bank of Korea, has stated that the central bank now has greater room to develop its own path based on domestic conditions, and the "last mile" of fighting inflation may be difficult. Bloomberg Economics predicts that the Bank of Korea will cut interest rates by 50 basis points by the end of this year.

The tightening policy of the Reserve Bank of Australia is nearing its end, and the current borrowing costs have risen to a 12 year high. Australian Federal Reserve Chairman Michele Bullock, who has consistently maintained a hawkish stance, is not expected to easily shift towards loose policies like other central bank governors in developed economies. However, at the same time, only a few economists believe that if inflation proves stubborn again, the Reserve Bank of Australia may raise interest rates again at the beginning of this year. Bloomberg Economics predicts that the Reserve Bank of Australia will cut interest rates by 75 basis points by the end of this year.