Japanese Media: Global Central Banks Trigger Rate Cuts

According to a report by Nikkei on September 12, multiple central banks around the world have successively announced interest rate cuts.

It is expected that the European Central Bank (ECB) and the Federal Reserve will announce a reduction of 25 basis points in policy interest rates on the 12th and 18th, respectively.

The aggressive inflation that swept the globe has returned to a stable state, and the trend of adjusting monetary policy has become very clear.

The economic data for the United States in August, which was released on the 11th, showed that the consumer price index, which had once exceeded 9% two years ago, has fallen back to 2.5%.

Lael Brainard, the director of the National Economic Council in the United States, emphasized that U.S. inflation has returned to a level comparable to that at the beginning of the COVID-19 outbreak in January 2020.

Although the market remains vigilant about the core inflation rate, which excludes energy and food prices, rising by 0.3% month-on-month, the increase is mainly due to rent.

More people are maintaining a clear understanding, and views represented by Wells Fargo believe that, judging from the transaction data of the private sector before, "the trend of a significant slowdown in inflation will not change in the future."

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Given that the price indicators did not exceed expectations, almost no market participants believe that the upcoming Federal Open Market Committee meeting of the Federal Reserve will make a decision to significantly cut interest rates by 50 basis points.

Ninety percent of the views in the interest rate futures market predict a rate cut of 25 basis points, and the focus is shifting to the economic outlook published at the same time.

The ECB will announce the latest interest rate decision on the evening of the 12th, Japan time, and ECB President Christine Lagarde will attend a press conference to explain.

In June this year, the ECB implemented its first interest rate cut in more than four years, and maintained the policy interest rate unchanged in July.

The market generally believes that the ECB will cut interest rates by an additional 25 basis points this time.

As one of the policy interest rates, it is expected that the market's focus on the central bank's deposit rate will also be reduced from 3.75% to 3.5%.

Among developed countries, the UK has already announced its first interest rate cut in more than four years in August, Canada has cut interest rates for the third time in a row at the beginning of this month following June and July, and Switzerland and Sweden are also likely to continue cutting interest rates.

Among emerging countries, following Brazil and Mexico, the Philippines also officially entered the interest rate reduction channel in August, which is also the country's first interest rate cut since the epidemic, and the views that predict India will cut interest rates this fall are also increasing.

The main reason why many central banks have turned around to start cutting interest rates is that the aggressive price increase momentum caused by factors such as the Ukraine crisis is slowing down.

The calculations of Yoshimasa Maruyama, Chief Market Economist of the Financial Economic Research Department of SMBC Nikko Securities, show that the global price increase fell to 4.9% in July, half of the peak of 9.5% in September 2022.

On the other hand, the policy interest rate level of 7.2% is far higher than the inflation level, leaving a larger operating space for interest rate cuts.

In the eurozone countries responsible for formulating monetary policy by the European Central Bank, the consumer price index in August rose by 2.2% year-on-year, falling to the lowest level in about three years.

The data for Germany, the largest economy in Europe, is 2%, reaching the price increase target set by the European Central Bank.

In the eurozone, the consumer price index of 9 out of 20 countries has slowed down to below 2%.

It is expected that the pace of interest rate cuts by central banks will differ in the future.

The market is digesting the expectation that the Federal Reserve will continue to cut interest rates at the interest rate meetings in September, November, and December.