The Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE), Bank of Japan (BoJ), National Bank of Hungary (NBH), Czech National Bank (CNB), National Bank of Poland (NBP), and National Bank of Romania (NBR) are expected to halt further rate hikes and initiate rate cuts in 2024. This move is in response to controlled inflation, as indicated by the core personal consumer expenditure deflator, and stable labor markets that are awaiting Spring Wage settlement outcomes.
The NBR is contemplating a significant shift in its monetary policy, anticipating a derailing disinflation path that could lead to 150 basis points worth of rate cuts by the end of 2024. The NBP, on the other hand, is proceeding with caution after a surprise 75 basis point rate cut. The NBH’s stance may be influenced by the strength of the Hungarian Forint and an inflation rate sitting at 12.4%.
The ECB’s decisions could be swayed by a surge in oil prices and its credibility in fighting inflation. Concurrently, the BoE is considering the projected rise in the average rate on outstanding mortgage debt from 3% to over 4%. Meanwhile, the BoJ is contemplating adjustments to its Yield Curve Control (YCC) policy.
However, these central banks’ decisions could be impacted by various challenges. These include a slowdown in real household disposable income growth, the resumption of student loan repayments, and a decrease in credit availability. Risks such as persistent US consumer spending, financial distress within the banking sector, a resilient eurozone economy, unexpected services inflation or wage growth, and weaker foreign exchange or an unexpected inflation surge are also factors that could influence these decisions.
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