The Swiss Central Bank fired the "first shot", and the wave of interest rate cuts in Europe and the United States is coming?

On March 22, Beijing time, without warning, the Swiss National Bank suddenly announced an interest rate cut, which surprised the market.

At the same time, Mexico also announced an interest rate cut, and there is news that Canada is planning to cut interest rates. Previously, the US Federal Reserve and the Bank of England in the United Kingdom were "on hold", but there is a great possibility of interest rate cuts in the future.

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After the Swiss Central Bank cut interest rates and fired the "first shot", will the wave of interest rate cuts in Europe and the United States come?

Switzerland: Cut interest rate by 25 basis points to 1.50%

According to the Beijing News, on March 21, local time, the Swiss National Bank (SNB) cut interest rates by 25 basis points to 1.50%, which surprised the market. The SNB's rate cut is the first rate cut since March 2022, when it gradually raised rates to a ten-year high of 1.75%.

The SNB said that the sharp decline in inflation and the appreciation of the Swiss franc have made it possible to cut interest rates, and is willing to actively participate in the foreign exchange market if necessary. The decision to cut interest rates took into account the easing of inflationary pressures over the past year and the real appreciation of the Swiss franc, and policy cuts would support economic activity, with accommodative monetary policy ensuring that monetary conditions remain appropriate.

Analysts pointed out that the SNB's interest rate cut shows its independence and forward-looking in monetary policy, reflecting a sensitive response to inflationary pressures. It is expected that the SNB will most likely continue to cut interest rates this year. 

Will the SNB's interest rate cut trigger a new cycle of interest rate cuts?

The SNB's interest rate cut fired the "first shot" of interest rate cuts by central banks in overseas developed economies. The SNB's rate cut action could have an impact on the monetary policy of other countries and could amplify the likelihood that the Fed and the ECB will cut interest rates this year.

Whether the Swiss National Bank's unexpected interest rate cut will lead the central banks of major overseas economies around the world to start a new round of interest rate cut cycle has attracted much attention.

Other central bank officials, including Fed Chair Jerome Powell and ECB President Christine Lagarde, have recently said that a rate cut could come in a few months. Lagarde said a rate cut in June is "likely", while Powell said the benchmark scenario is three rate cuts this year, which the market sees as a high probability of a rate cut in June.

In addition, there are reports that the Bank of Canada is also planning to cut interest rates.

Mexico: Benchmark interest rate cut 25 basis points to 11%

In addition to Switzerland, Mexico has also begun to cut interest rates.

According to Xinhua News Agency, the Bank of Mexico announced on the 21st that it would cut its benchmark interest rate by 25 basis points to 11%. This is the first time that the Bank of Mexico has cut interest rates since the start of its interest rate hike cycle in June 2021.

The Bank of Mexico issued an announcement on the same day that the country's inflation level is expected to continue to decline, but in view of the current economic risks and challenges, the central bank will continue to adjust monetary policy cautiously.

According to the announcement, the central bank of Mexico adjusted its inflation forecast for the four quarters of this year, from 4.7%, 4.3%, 3.9% and 3.5% to 4.6%, 4.4%, 4.0% and 3.6% respectively. Mexico's annualized inflation rate was 4.4% in February, down from 4.88% in January, according to the latest data from Mexico's National Institute of Geography and Statistics.

The last time the Bank cut interest rates was in February 2021. From June 2021 to March 2023, the Bank of Mexico raised interest rates 15 times in a row, raising the benchmark interest rate from 4% to 11.25%. 

United Kingdom: Institutions are forecasting a rate cut in June or August

According to China Securities Journal, on the evening of March 21, Beijing time, the Bank of England, the Bank of England, issued its interest rate decision for March. In line with market expectations, the Bank of England continued to "hold its ground" this time, keeping the benchmark interest rate at 5.25%.

According to the website of the Bank of England, the Bank of England's Monetary Policy Committee voted 8 to 1 to maintain the benchmark interest rate at 5.25%, with one member inclined to cut the rate by 0.25 percentage points to 5%, and no member voted in favor of raising the interest rate. The MPC believes that the current key indicator of persistent inflation remains elevated and that monetary policy needs to remain restrictive for long enough to "sustainably reduce inflation to the 2% target over the medium-term time scale".

Previously, Bank of England Governor Bailey had said that more evidence of inflation is still needed to cut interest rates, but it is not necessary to cut interest rates after inflation reaches the target level, and it may be cut this year. Judging from the current market expectations, the probability of the Bank of England cutting interest rates in June or August is relatively high.

United States: The Fed is expected to cut interest rates three times this year

On March 20, local time, the Federal Reserve ended its two-day monetary policy meeting and announced that it would keep the target range of the federal funds rate unchanged between 5.25% and 5.5%. The Fed is expected to cut interest rates three times this year.

This is the fifth consecutive time that the Fed has kept interest rates unchanged since September last year. In a statement issued on the same day, the Fed said it was "inappropriate" to lower the target range for the federal funds rate until there was greater confidence that inflation would continue to move toward its long-term 2% target. The outlook for the U.S. economy is uncertain, and the Federal Open Market Committee, which sets monetary policy, will continue to be highly concerned about inflation risks.

The statement reiterated that the Fed will continue to monitor the impact of upcoming information on the economic outlook when assessing the appropriate monetary policy stance. If risks arise that could impede the achievement of the target, the Fed will be prepared to adjust its monetary policy stance as appropriate.

What will be the impact of the interest rate cut cycle on global financial markets in 2024?

Under the influence of the European and American economies starting to start the cycle of interest rate cuts, how will the global financial market perform in 2024?

In a previous report by Futures Daily, Wei Gang, deputy general manager and chief economist of Hengtai Futures, believes that the Fed has ended the interest rate hike cycle and started the interest rate cut cycle, which means that global liquidity is turning. The narrowing of interest rate differentials between non-US currencies and the US dollar has driven the gradual flow of US dollars to non-US countries. The shift in the flow of the US dollar, as well as changes in global liquidity, will have a significant impact on the global asset class.

According to Shi Jialiang, deputy general manager of the Founder Medium-term Futures Trading Consulting Department and senior analyst of global macro and precious metals, the European and American economies have started a cycle of interest rate cuts, which has different impacts on different markets. He further explained that for the stock market, the expectation of interest rate cuts will rise and enter the cycle of interest rate cuts, and the release of liquidity will directly benefit the stock market; for the bond market, after the policy shift, the currency value will be affected, bond yields will fall, and bond prices will rise; for the foreign exchange market, the local currency will fall if the policy is loose and the money is over-issued, or the money supply is expected to exceed the demand expectation.

Cheng Xiaoyong, deputy general manager of Guangzhou Financial Holding Futures Research Institute, believes that interest rate cuts in overseas economies, especially by the Federal Reserve, are conducive to easing the pressure of capital outflows from the mainland.

Upstream news integrates Xinhua News Agency, Beijing News, China Securities Journal, Futures Daily, etc