The global interest rate cut race is heating up.

At the end of its policy meeting on June 12, officials of the US Federal Reserve (Fed) announced that they would keep interest rates unchanged at 5.25-5.50%. This is the seventh time the agency has “frozen” interest rates and is not beyond the previous speculation of observers.

However, the highlight that markets were looking forward to was that Fed policymakers publicly signaled that there would be only one rate cut this year. Although this forecast is narrower than the speculation of three cuts made by March 2024, it somewhat clearly signals that the Fed will reverse its tight monetary policy, opening a new era for interest rates.

Since the beginning of the year, Sweden became the first of the 10 countries and regions with the world's most traded currencies - including the US, the European Union (EU), Japan, the UK, China, Canada, Switzerland, Australia, Sweden and Norway - to cut interest rates on February 8. Switzerland followed on March 21.

On June 5 and 6, two of the world's largest central banks, the Bank of Canada (BoC) and the European Central Bank (ECB), also lowered interest rates. Both banks lowered interest rates by 0.25 percentage points. This is the first time BoC has lowered interest rates since March 2020 and the ECB for the first time since 2019.

ECB leaders stressed that the rate cut was necessary to support economic growth and ensure that inflation remained close to the 2% target. The ECB Governing Council said that based on an updated assessment of the outlook and factors influencing inflation and monetary policy, the council considered it appropriate to adjust the degree of monetary policy restraint after nine months of keeping interest rates stable. By starting the process of lowering interest rates early, the ECB hopes to breathe new life into the EU's housing market, business investment and consumer spending.

Strong moves by the ECB, as well as the BoC or the Swiss National Bank (SNB)… reinforced market expectations about the Fed's monetary policy response, alongside positive data from the US economy.

Assessing the prospects for monetary policy direction from the world's largest economy, observers believe that interest rates will not be adjusted until September. The US maintaining interest rates higher than many other developed countries will attract foreign capital to this country, to benefit from the interest rate differential.

The sudden surge in cash could inject liquidity into the financial system at a time when the Fed is trying to control prices. This would make it more difficult for the Fed to ease monetary policy and undermine its goal of a “soft landing” of the U.S. economy if interest rates remain high for an extended period.

In its updated forecast for the world economic outlook for 2024, released on June 11, the World Bank (WB) warned of a scenario of “higher for longer” interest rates.

The sharp rise in interest rates has reduced inflation but has not caused widespread job losses and other disruptions in the United States or other major economies, said Ayhan Kose, deputy chief economist at the World Bank. “That’s the good news. But the bad news is that we may be stuck in the slow lane,” he said.

The World Bank has revised up its global economic growth outlook for 2024 from the 2.4% forecast in January 2024 to 2.6% now. The organization also forecasts global growth of 2.7% in both 2025 and 2026. But these growth figures are still low compared to the average global growth of 3.1% in the 2010-2019 period.

The World Bank also forecasts that global interest rates will remain double their 2000-2019 average over the next three years, holding back growth and adding to debt pressures for emerging market countries that have borrowed in dollars.

In Europe, the Bank of England (BoE) is likely to freeze its base interest rate at its meeting on June 20 until the general election in July 2024. However, economic indicators, especially UK consumer prices in May 2024, hit a six-month low, raising expectations that the country will cut interest rates soon this year.

Norway's central bank is also expected to start cutting interest rates from September 2024, with just one cut this year, a rate of 0.5 percentage points.

The remaining two of the world’s 10 most-traded currencies are not expected to move their interest rates anytime soon, at least until early 2025. Japan, whose interest rate policy is at odds with the rest of the world, raised its interest rate from negative to 0-0.1% for the first time in 17 years in March 2024. Meanwhile, in Australia, prices have not yet stabilized enough to provide a solid basis for the Reserve Bank of Australia (RBA, the central bank) to act.

Source: https://doanhnghiepvn.vn/kinh-te/cuoc-dua-ha-lai-suat-toan-cau-bat-dau-nong-len/20240614100045291