While the steps that need to be taken by central banks continue to be decisive in investing pricing, it is highly likely that the Fed and ECB will raise interest rates by 75 basis points this month, although they have varied until the last moment. .
While the September calendar of the world’s major central banks looks intense, decisions that serve as a guide for the direction of the global economy and financial markets are expected to increase market volatility.
While macroeconomic data announced around the world indicate that the slowdown in major economies continues, fears of recession continue to occupy the agenda given ongoing risks such as epidemics and wars. On the other hand, persistent supply-side pressures mean that fears of high long-term inflation persist.
In this direction, the steps that central banks must take, trapped between the dilemma of inflation and recession, and the indications of the authorities are the most important determinants in terms of investor pricing.
The dates of this month’s major central bank meetings and current market expectations are as follows:
HAWK’S RELEASES OF THE FED CONTINUE
The decisions that the US Federal Reserve (Fed), which directs global monetary policies, will have to take at its September meeting remain uncertain. The signals given in the minutes of the meeting by the Fed, which held its previous meeting in July and took a very “hawkish” step with a rate hike of 75 basis points, indicated a data driven and more moderate policy for the next months .
On the other hand, statements by Fed Chairman Jerome Powell at the Jackson Hole Economic Policy Symposium opened the door to a 75 basis point hike in interest rates, and the leadership of bank members in the coming period also supported. This possibility.
While expectations for this month’s bank meeting vary due to mixed signals from announced data and rising geopolitical risks, the likelihood of a 75bp interest rate hike by the Fed on Sept. 20-21 is currently assessed. to 58% in money markets.
The Bank is more likely to raise interest rates by 50 basis points in its meetings on 1-2 November and 13-14 December. Although varying until the last moment, if these expectations are fulfilled, the Bank; In its 3 meetings, it will raise the official rate by 175 basis points to 400-425 at the end of the year.
In Europe, grappling with the energy crisis in the midst of the Russia-Ukraine war, growing fears of recession even in the region’s strongest economies are pushing the European Central Bank (ECB) into a corner in the face of rising inflation .
The 75 basis point rate hike, which officials discussed in Jackson Hole regarding the ECB meeting to be held on September 8, stands out as a notable possibility. On the other hand, last week, the G7 countries agreed to impose a maximum price on Russian oil and Russia announced that it will not sell oil to those who implement the aforementioned decision, causing a reshaping of expectations.
While the aforementioned development stood out as a factor that would increase inflationary pressures under the guidance of energy prices, the fact that it also increased the chances of recession reinforced expectations for the ECB to support the economy.
Currently, in money market pricing, the ECB is expected to raise interest rates by 75 basis points for the first time in its history at its meeting on Thursday this week.
At its last meeting in July, the ECB raised interest rates for the first time in 11 years, changing the refinancing rate from 0% to 0.50%, the marginal interest rate from 0.25% to 0, 75% and the interest rate paid for deposits at the percentage had increased from minus 0.50 to 0 percent. Despite the rate hike, annual inflation in the Eurozone continued its upward trend, reaching an all-time high of 9.1 percent in August.
Distinct from the rest of the world in terms of inflation trends, Japan’s monetary policy continues to be accommodating to its peers.
Despite the rise in commodity prices after the Russia-Ukraine war, the limited rise in the Consumer Price Index stands out as the most important reason for maintaining the extremely accommodative monetary policy in the country, which for many years has struggled with a low inflation. On the other hand, rising international dollar demand and rapidly rising dollar / yen parity keep economic officials and the BOJ on high alert.
The official rate in Japan is currently minus 0.1 percent. Although annual inflation in the country surpassed targets with 2.9% in August, officials believe this is due to rising commodity prices and there is insufficient evidence that the overall price and wage level has steadily increased.
With all of this in mind, the bank is not expected to make any changes to interest rates and extremely accommodative monetary policy at the monetary policy meeting to be held from 21-22 September.
While the People’s Bank of China (PBoC) does not have a meeting scheduled this month, the growing number of new coronavirus (Kovid-19) cases in the country and the signals of an economic slowdown from the announced data increase expectations of support from part of the political decision makers.
In the country, which has adopted a zero-homes policy under the Kovid-19, measures were tightened in Shenzhen, the center of major technology companies, last week, and also in the province of Chengdu, where the producers of chip, was quarantined. While this signaled that the country’s economy, which was already showing signs of slowing, would drift further away from its growth targets, the data announced for the manufacturing and services sectors supported this development.
The last time the PBoC met off-calendar in August, it reduced the 1-year benchmark rate (MLF) by 10 basis points from 2.85% to 2.75%. Immediately after the policy rate cut, the Bank also reduced the reference interest rates by 15 basis points, considered as a reference for real estate loans. Against this backdrop, the 1-year loan interest rate (LPR) was reduced from 3.70% to 3.65% and the 5-year loan interest rate from 4.45% to 4.30 %.
In the UK, the BoE is expected to raise the benchmark rate further amid inflation, which reached an all-time high of 9.1 percent in August due to high energy prices.
The BoE, which held its last meeting in August, raised the policy rate by 50 basis points to 1.75%. The bank had raised the policy rate by 25 basis points each in February, March, May and June of this year.
Citing the development of inflation expectations as the reason for the rate hike decision, the Bank stressed that the risks for further rate hikes still exist.
Assessing that the rise in energy prices due to the Russia-Ukraine war will hurt UK economic growth and increase inflationary pressures in the short term, it is said that the Bank could raise interest rates by another 50 basis points at the meeting. of 15 September. The Bank, which has meetings in November and December, is expected to be able to end the year with a rate close to 3 per cent. (AA)