Central Bank Tracker: March delivered the first DM central bank rate cut

Trusted Insights for What’s Ahead^®

• March was a busy month for central bank watchers. Among the 12 major Developed Market (DM) banks that The Conference Board tracks, 10 had monetary policy meetings scheduled during the month.  
• March finally delivered the first rate cut by a DM central bank. However, the Swiss National Bank’s policy action was not the start of a broader rate-cut cycle. Instead, it reflected specific economic fundamentals in Switzerland.    
• March also delivered rate hikes from the Bank of Japan and Taiwan’s central bank. Japan’s action ended the economy’s negative interest rate policy, while a strong rebound in economic activity prompted the action in Taiwan.   
• Our GDP-weighted Developed Market monetary policy rate average increased two basis points to a new cycle high of 4.39%. Through February, the GDP-weighted average CPI inflation rate across the 12 DM economies was unchanged at 2.9% from the prior month.

Meeting Highlights: The Fed and ECB are still not ready to start the rate cut cycle, while the BOJ is moving in the opposite direction 

• The Federal Reserve kept the target range for the Federal Funds rate steady at 5.25% - 5.50%. FOMC Chair Powell stressed that more positive inflation data would be needed before cuts could occur. The Conference Board expects the first rate cut in June. Meanwhile, the bank will continue its policy of balance sheet run-off. Since early 2022, the Fed has reduced its security holdings by over $1.5 trillion. However, the pace of the runoff will be reduced “fairly soon,” according to Powell. The Conference Board still expects the Fed to start cutting interest rates in June. However, we now project only four rate cuts this year, down from five in March and another four cuts in 2025 (see also: "Fed still anticipated three rate cuts this year" and our latest monthly Economy Watch:US View). 
• The ECB kept its deposit and repo rates unchanged at 4% and 4.5% respectively and provided no explicit guidance for a rate cut at the next meeting in April. ECB President Lagarde remained focused on inflation, stating, "although most measures of underlying inflation have eased further, domestic price pressures remain high.”  Yet, the bank’s staff macroeconomic projections revised the expected future path for Euro Area inflation downwards. It is now projected to reach the ECB’s 2% target in 2025 compared to 2026 in the December projections. That is a strong hint that we are getting close to the first rate cut, which we continue to expect in June (see also our latest Economy Watch: Europe View).
• The Bank of Japan (BoJ) raised rates for the first time in seventeen years, ending its long-standing negative interest rate policy, which was in place since 2016. The bank established a new policy rate target range of 0%-1%, representing a 15 basis point increase from the previous -0.10% policy balance rate. The rate move is evidence of the bank’s increased confidence that the 2% inflation target can be achieved “in a sustainable and stable manner.” (see also: "Bank of Japan raised rates for the first time in 17 years").
• The Bank of England (BoE) kept monetary policy rates unchanged at 5.25%. However, the voting record showed the bank is moving closer to a rate cut decision. In January, two Monetary Policy Committee members voted for another rate hike, while only one member preferred a rate cut; the remaining six favored no change. The March meeting showed no votes for hikes and still one vote for a cut. The bank’s statement acknowledged that inflation pressures are abating. Yet, much of the recent improvement has come from the goods side, while services inflation was still running above 6%. It was unsurprising then that the statement also reiterated “that monetary policy needs to be restrictive for an extended period until the risk of inflation becoming embedded above the 2% target dissipates,” suggesting the BoE will not be in the early wave of interest rate cutters.

• The Bank of Canada (BoC) was another central bank that left rates unchanged, in Canada’s case at 5%. Inflation at 2.8% is back in the bank’s 2%-3% target range. Yet, the policy statement still emphasized concerns “about risks to the outlook for inflation, particularly the persistence in underlying inflation,” adding that the “Governing Council wants to see further and sustained easing in core inflation” as a precondition for eventual rate cuts.
• The Swiss National Bank (SNB) became the first DM central bank in this cycle to cut monetary policy rates (by 25 basis points to 1.5%). However, the SNB’s move was not the start of the broader easing cycle that many central bank watchers forecast this year. Swiss inflation has been below 2% for the past nine months, quarterly real GDP growth averaged just 0.7% since mid-2022, and the economy’s real effective exchange rate was trading close to the highest since 2015.

• Taiwan’s central bank raised rates 12.5 basis points to 2%. The bank reacted to the strong rebound in economic activity in the last two quarters, which threatens to reignite inflation. Taiwan’s inflation rate has been volatile, trending between 2% and 3% for most of the second half of last year. In January, inflation slowed sharply to 1.8%, only to rebound again in February to 3.1%, the fastest pace since the summer of 2022. The main driver was an expected hike in electricity rates, which the bank cited explicitly in its justification for the rate increase. 

Looking ahead: The Bank of Japan and ECB meetings are the highlights in the April central bank calendar

April will be a quieter month for central bank watchers with only five DM policy meetings on the calendar, starting with the Reserve Bank of New Zealand, then the Bank of Canada, the ECB, the Bank of Korea, and finishing with the Bank of Japan.

One of the most interesting questions will be whether the Bank of Japan will raise rates further following the end of its negative interest rate policy last month. The weak Japanese yen threatens to keep inflation above the bank’s 2% target, which might require further interest rate hikes. The ECB has strongly guided expectations towards a June rate cut and is epected to remain on hold this month. The Bank of Canada has not provided guidance what to expect from its April meeting. The RBNZ is still facing the highest inflation rate of the 12 banks we track regularly, which is keeping the rate cut door firmly shut. Elevated inflation is also why the Bank of Korea will likely remain on hold this month.