Investors might glean more on the Fed’s resolve to ease and how close Japan is to finally exiting negative interest rates as central banks set policy for almost half the global economy.
This week features the world’s biggest collection of decisions for this year to date, including judgements on the cost of borrowing for six of the 10 most-traded currencies. The collective outcome might underscore how monetary officials’ perception of inflation risks is diverging noticeably.
The Bank of Japan’s (BOJ) announcement tomorrow is pivotal.
Photo: Reuters
It might finally move toward raising borrowing costs and effectively calling an end to a generation-long period of feeble price growth points.
The meeting comes days after Japan’s largest umbrella group for unions announced that annual pay negotiations resulted in the biggest increases in more than 30 years, sending a signal to authorities that their long-sought-after virtuous cycle of strong wages fueling demand-led inflation might be emerging.
“We think it will judge that it’s too early to tighten,” Bloomberg Economics senior Japan economist Taro Kimura said in a report. “To be sure, there is a significant risk to our call.”
On the same day, the Reserve Bank of Australia is expected to hold its cash rate at 4.35 percent after weaker-than-expected inflation in January. Investors would focus on whether the institution keeps its hawkish tone or hints at a pivot a few months out.
Most consequential would be the Fed’s decision on Wednesday. The US central bank is widely expected to hold rates steady for a fifth consecutive meeting and to continue to project three quarter-point rate cuts this year, even as inflation has proven stickier than expected in the past two months.
After raising their benchmark federal funds rate by more than five percentage points starting in March 2022, the Federal Open Market Committee has held borrowing costs at a two-decade high since July last year.
Against the backdrop of strong job growth and a jump in prices in January and last month, officials have repeatedly emphasized they are in no rush to ease.
US Federal Reserve Chairman Jerome Powell told US Congress this month that the central bank is getting close to the confidence it needs to start lowering rates, saying they were “not far” from that when considering the strength of inflation.
The central bank in Taiwan last week hinted it might keep interest rates unchanged in its quarterly board meeting this Thursday, while raising concern about the impact the government’s proposed electricity price increases could have on inflation.
“There is no room for rate cuts before June,” central bank Governor Yang Chin-long (楊金龍) told lawmakers.
When asked whether the monetary authority would consider increasing borrowing costs to curb inflation, he said it would “cautiously discuss the possibility of rate hikes in its board meeting next week.”
The central bank raised its inflation forecast for this year to 1.89 percent in December last year, when it kept borrowing costs at 1.875 percent for the third straight meeting.
Yang last week said the central bank could increase its inflation forecast to factor in new electricity prices.
In Europe, central banks from the UK to Switzerland might inch toward reducing borrowing costs.
The Swiss National Bank is anticipated by most economists to stay on hold on Thursday, though two respondents in Bloomberg’s survey predicted that officials would cut rates, opting not to wait for bigger counterparts to start their own easing cycles.
Shortly after that, Norges Bank is also expected to keep borrowing costs on hold, with investors focusing on potential changes in its outlook for when reductions might start.
Meanwhile, Bank of England policymakers would have fresh inflation data on Wednesday and the latest purchasing manager surveys on Thursday to consider before their decision, which is seen likely to keep rates unchanged again.
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