Analysts Focused On ECB Interest Rate Decision And Board Statement
The European Central Bank’s (ECB) interest rate decision sits at the top of most awaited financial updates in the remainder of the week as analysts try to forecast when the bank would start reducing borrowing costs.
Hong Kong's Hang Seng stock index rose by 3% on Wednesday after the People’s Bank of China (PBoC) announced the first reserve requirement ratio (RRR) cut of the year. The cut would be 50 basis points (bps) while, during 2023, the PBoC cut the RRR twice by 25 bps each time. The PBoC’s policymakers aim to bolster the Chinese economy that struggles to mount a strong post-COVID recovery.
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ECB Interest Rate Decision
On Thursday the ECB governing board will announce its decision on interest rates. Most economists suggest that the council, headed by Christine Lagarde, will leave borrowing costs on hold. However, they intend to scrutinise the post-meeting report for any signs showing the ECB’s future plans on monetary policy.
Interest rates in the eurozone currently stand at the highest level recorded in the last twenty-two years. Lagarde, speaking to Bloomberg journalists on the sidelines of the WEF Annual Meeting in Davos, noted that “it is likely that we will cut rates by the summer.”
Market analysts at MUFG Bank noted that the euro is the G10 third best-performing currency in 2024 and added that “we expect the ECB to continue presenting a relatively hawkish message at this week’s policy meeting which has been helping to support the Euro at the start of this year. The Eurozone rate market has already taken out around 40 bps of expected cuts by the end of this year.”
Tokyo CPI January 2024 Report
The Japanese Statistics Bureau will publish Tokyo CPI inflation data for the month of January on Thursday evening. Analysts polled by Reuters forecast Tokyo core CPI figure to fall under 2% for the first time in the last 19 months. Data published last Friday showed that Japan’s core inflation came in at 2.3% in December, higher than the 2% target set by the Bank of Japan.
MUFG bank analysts suggested that the yen is unlikely to strengthen on a more sustained basis, taking into consideration the current conditions. In their report, they noted that “while we expect the BoJ’s exit from negative rates to encourage a stronger Yen alongside rate cuts from other major central banks such as the Fed, recent price action has highlighted that it is still likely premature to expect the JPY to strengthen on a more sustained basis at the current juncture.”
Ex-Fed Board Member Bullard: Rate Cuts Possible In March
In the US, former St. Louis Federal Reserve (Fed) President James Bullard suggested that the Fed’s board could start cutting rates as early as March before CPI inflation reaches 2% as it might be too late. In his remarks, Bullard said: “If inflation is somewhere between 2% and 2.5% and you still haven't moved the policy rate, then you might have to move very aggressively, with 50 basis points at a meeting or something, and that would be a difficult thing.”
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