Only the Bank of Japan among the top 23 central banks in the world is expected not to lower borrowing costs in the next 18 months, and most are ready to cut interest rates this year. By the end of 2025, institutions' total global benchmark interest rates are expected to be lowered by 155 basis points. Predictions indicate that even the Fed itself, faced with stubborn U.S. inflation, will take several easing measures this year. It is certain that the prospect of unprecedented global tightening policies implemented after the epidemic to reduce inflation is weakening.

Other central bank officials who are worried about persistent consumer price pressures, echoing their cautious attitude in the United States, seem to have taken a much milder path of interest rate cuts than when they raised interest rates. Global policy makers will not allow the Fed's delay in interest rate cuts to distract too much attention from their own loosen monetary policies.

The loose policies of developed countries are also relatively asynchronous. For example, the Swiss central bank has cut interest rates twice this year, the European central bank has cut interest rates once, the Bank of England has not cut interest rates yet, and Norwegian central bank officials have just said that they are unlikely to take action before 2025. As hawkish stances by the Fed and the European central bank show, global easing policies may still face further setbacks. The Australian central bank even does not rule out the possibility of another rate hike.

Tom Orlik, Bloomberg's chief global economist, said: "Inflation after the epidemic has torn up the central banks' scripts. The normal 'up escalator, down elevator' pattern has been reversed, with house prices rising rapidly and falling slowly. As the European central bank, the Swiss central bank and many emerging markets formulate their own policy lines, the influence of the Fed as a global anchor seems to have weakened. The overall situation is that interest rate cuts have come later, slower and more asynchronous than expected at the beginning of the year."

But as the second half of the year approaches, the prospect of relaxing tightening seems increasingly likely to become a reality for most of the world. Here is guidance from institutions on the prospects for major developed country central banks, which guide monetary policy direction for global central banks.

The Bank of Japan will raise interest rates next time?

The current federal funds rate (upper limit) is 5.5%, and Bloomberg predicts it will be 5% and 4% by the end of 2024 and 2025, respectively. However, the market prices in a 25-basis-point interest rate cut before November and an 80% probability of another interest rate cut in December. According to median forecasts released in June, Fed officials expect one interest rate cut this year, and everyone is watching for clues as to whether it will occur in the third quarter, by the end of the year or even later.

After data released in early 2024 raised concerns about the slowdown in the process of reducing inflation, policy makers have been cautious about the timing of easing policies. But some Fed officials have emphasized that recent data suggest that inflation pressures are easing again. A key indicator of potential consumer price growth slowed for the second consecutive month in May.

However, some officials have said that it is important not to overemphasize some encouraging signs of inflation. Fed Chairman Powell emphasized that policy makers will rely on a range of data, including labor markets and prices, when deciding when it is appropriate to cut interest rates.

Bloomberg economist Anna Wong said: "The unexpected high inflation rate in early 2024 was offset by the dot plot in June, which indicated a 25-basis-point interest rate cut this year. However, Powell said that 'unexpected' weakness in the labor market could prompt the Fed to cut interest rates more quickly. We expect the unemployment rate to rise to 4.2% by September, and even if core PCE inflation remains above target, the Fed may start to ease monetary policy. We expect interest rates to be cut in September and December, with a total cut of 50 basis points this year and 100 basis points by 2025. "

European Central Bank

The current active benchmark interest rate is 3.75%, and Bloomberg predicts it will be 3.25% and 2.25% by the end of 2024 and 2025, respectively. The market is pricing in a very high probability of a 25-basis-point interest rate cut in September and a close to three-quarters probability of another interest rate cut by the end of the year. The European central bank cut interest rates for the first time in this round of easing policies in June and is not yet eager to take more action.

According to the latest quarterly forecasts released by ECB President Lagarde, although inflation is still gradually falling, it will take until the end of 2025 to sustainably reach the 2% target. Wage increases, especially in the services sector, have pushed consumer prices higher and officials are uneasy about a hasty relaxation of monetary policy. Rates are expected to remain unchanged at the July meeting, making it an opportunity to cut interest rates again in September.

Bloomberg economist David Powell said, "The European Central Bank is unwilling to cut interest rates again unless there is more evidence that cost pressures are easing after official time series on negotiations for salaries, service industry inflation, and per capita compensation have risen. We predict that rate hikes will be suspended in July, but slowing wage growth in Q2 of 2024 is expected to prompt further action in September. There may also be another action in December when overall inflation may be below the target level, making this restrictive position unsustainable."

Japan Central Bank

The target benchmark interest rate (upper limit) is 0.1%, and Bloomberg predicts it will be 0.5% at the end of 2024 and 2025. In the remaining time of this year, the rate of tightening by the Bank of Japan is slightly lower than 25 basis points, and the next rate hike is expected to be implemented before October. The Bank of Japan may announce a quantitative easing plan to reduce bond purchases as early as July of this quarter. It cannot be ruled out that the rate hike will be implemented at the same time.

Exchange rates could continue to complicate the work of the Bank of Japan. Weak yen has pushed up import costs, putting pressure on households and small businesses, and has been one of the reasons for Japan's economy contracting twice in the last three quarters. In late April and early May, Japan's Ministry of Finance carried out its largest intervention to support the yen. More and more market views are that the Bank of Japan will take action to support the yen sooner or later.

Bloomberg economist Taro Kimura said, "The Bank of Japan seems determined to normalize its policy. It is confident that Japan is breaking free from decades of price stagnation. Another major motivation is to keep the interest rate away from the 'negative limit' to gain greater flexibility. We believe that the Bank of Japan hopes to gain policy buffers when CPI data stabilizes. We predict that the Bank of Japan will raise its interest rate target by 15 basis points in July to 0.15%-0.25% and then to 0.4%-0.5% in October."

Bank of England

Current bank rate is 5.25%, Bloomberg predicts it will be 4.75% and 3.75% by the end of 2024 and 2025 respectively. The possibility of a 25 basis points cut in August is small and the probability of another cut before the end of the year is 75%. The Bank of England indicates that it may cut interest rates in August during the Monetary Policy Committee meeting on 20th June. Although the committee voted to keep the rate unchanged at 5.25%, two members hoped for an immediate 25 basis points cut, and at least three members thought the decision was 'very balanced', which will give doves the majority.

The UK General Election on July 4th made the decision in June more complex, and campaigning by all parties is in full swing. Although the Monetary Policy Committee said the vote was "irrelevant" to their decision, the timing was not quite right. Economist believe that the main obstacles to cutting interest rates are still sticky service prices and wage growth, and the Bank of England is using these two indicators to gauge potential pressure. Inflation has returned to the 2% target, but the Bank of England predicts that it will start to rise again by the end of this year.

The Bank of England expects the second quarter to grow by 0.5% after the economy grew by 0.7% in the first quarter. The decision to cut interest rates is unlikely to be delayed as officials believe the policy will remain "restrictive" even after the easing cycle begins.

Bloomberg economist Dan Hanson said, "In recent months, the tone of the Bank of England has become increasingly dovish, indicating that an interest rate cut in August (which is our basic prediction) is absolutely possible. Despite signs of sticky service inflation, the tone has changed. We think the upcoming data needs to have substantial upside surprises to delay the start of the easing cycle. There may be a second rate cut in November."

Bank of Canada

The current overnight loan rate is 4.75%, and Bloomberg predicts it will be 4.25% and 3.25% at the end of 2024 and 2025 respectively. Market traders expect that policy makers will cut interest rates twice more this year, in September and December. In June of this year, the Bank of Canada became the first central bank in the G7 to ease monetary policy, lowering the benchmark overnight rate to 4.75% after seeing increasing evidence of slowing inflation pressures.

At the time, Bank of Canada Governor McKlum said it was "reasonable" to expect further rate cuts if anti-inflation persisted, sparking speculation that the bank was about to start diverging from the US Federal Reserve's policy. But since then, Canadian inflation data has reversed - CPI rates rose to 2.9% YoY in May and core pressures regained momentum, raising doubts about how long officials should wait before cutting interest rates further.

Bloomberg economist Stuart Paul said, "Strong domestic demand and indicators showing recent acceleration in spending suggest that the pace of rate cuts this year should be slow. We expect the Bank of Canada to cut the policy rate on a quarterly basis and lower the overnight rates to 4.25% by the end of the year. Risks of lower-than-expected inflation support the downward trend of policy rates. But with immigration-induced population growth, rapid interest rate cuts could reignite housing prices and may lead to a second surge in inflation."

The current cash rate is 4.35%, and Bloomberg predicts it will be 4.1% and 3.1% respectively by the end of 2024 and 2025. In the tightening cycle of 2022-23, the degree of interest rate hikes of the Reserve Bank of Australia was lower than that of its peers in major developed countries. Therefore, it is likely that it will have to maintain a higher interest rate for a longer period of time to bring inflation back to its target level. RBA Governor Lowe is certainly not ready to discuss a loose policy. In fact, after the policy meeting in June, Lowe reiterated that the RBA had not "excluded any possibilities", indicating that there was still a possibility of another rate hike.

The current cash rate is 4.35%, and Bloomberg predicts it will be 4.1% and 3.1% at the end of 2024 and 2025, respectively. During the tightening cycle of 2022-23, the rate hike of the Reserve Bank of Australia was lower than that of major developed countries. Therefore, it may have to maintain a higher rate for a longer period of time to bring inflation back to the target level. Reserve Bank of Australia Governor Philip Lowe is certainly not ready to talk about loose policies. In fact, after the policy meeting in June, Lowe reiterated that the Reserve Bank of Australia did not "rule out any possibilities," indicating that the possibility of another rate hike still exists.

Economists and the currency market believe that the Reserve Bank of Australia may raise interest rates at the next meeting in August, but the more widespread consensus is that the next move will be to cut interest rates-back, though, not until 2025. This could make the Reserve Bank of Australia one of the last major institutions to initiate a loose cycle.

Before the meeting on August 5-6, the Reserve Bank of Australia will release key second-quarter inflation data; if prices surge unexpectedly, it could force the central bank to make a final rate hike.

Bloomberg economist James McIntyre said: "Recently, monthly inflation data unexpectedly rose, increasing the risk of the Reserve Bank of Australia raising interest rates again. This will come at the cost of economic growth in an already weak economy. Second-quarter inflation data will be a catalyst for success or failure in August. We believe the Reserve Bank of Australia has done enough and the next rate cut could come as early as the fourth quarter."

Bank of Korea

The current benchmark rate is 3.5%, and Bloomberg predicts it will be 3% and 2.5% at the end of 2024 and 2025, respectively. If inflation slows down as expected later this year, the Bank of Korea may be one of the first central banks in Asia to join the ranks of the European Central Bank and the Bank of Canada to make policy adjustments. In May of this year, despite raising its economic growth forecast, the Bank of Korea maintained its consumer price expectations unchanged, opening the door to rate cuts. Bank of Korea Governor Lee Ju-yeol said on June 18 that the bank may give a clearer outlook at its council meeting in July.

More and more economists expect the Bank of Korea to cut interest rates in August. However, concerns about the Korea-US interest rate differential and its impact on the Korean won may cause the Bank of Korea to wait longer until the Federal Reserve takes more decisive action.

Bloomberg economist Hyosung Kwon said: "As inflation slows down, the Bank of Korea is preparing for a loose cycle. We expect South Korea to start cutting interest rates in August, but concerns about the depreciation of the Korean won may change the timing of the rate cut. Because of concerns about excessive debt to stimulate the private sector, it may only be gradually implemented. The Bank of Korea may also use liquidity tools and lending plans to ease the risks in the real estate market and reduce the need for further rate cuts."

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