Nomura: Fasten your seatbelts, the wave of global central bank interest rate cuts is coming

Wall Street Sights

2024-05-19 18:07Posted on the official account of Shanghai Wall Street

The global interest rate cut cycle has begun, with several central banks accelerating towards rate cuts as inflation slows in the Federal Reserve.

In his report on Thursday, Nomura noted that confidence in the Fed's rate cut in July (followed by December) is rising as the US core CPI slowed in April and there is growing evidence that the US economy is slowing.

Nomura Shihide:

In fact, the global cycle of interest rate cuts is already underway, with more than a dozen major central banks cutting rates.

It's been an unusual cycle, and while some central banks were hesitant at the beginning, other central bank actions have decoupled from the Fed given the local economic outlook.

Now that market expectations for a cooling U.S. economy have risen and the Fed is preparing to cut interest rates, the global rate cut cycle is expected to accelerate unless the supply shock returns.

Nomura expects the European Central Bank, the Swiss National Bank, the Bank of Canada, the National Bank of Poland to cut interest rates between now and the end of June, and many other central banks to take a dovish stance.

The ECB is expected to start cutting interest rates in June ahead of the Fed, with four 25 basis point rate cuts throughout 2024 and a 3% rate cut by the end of the year. The Fed will cut rates for the first time in July and twice this year, with rates expected to be 4.88% at the end of 2024.

As the global rate-cutting cycle accelerates, comparisons of core CPI inflation, the Sahm rule's recession risk gauge, and the real policy rate highlight that some central banks have been slower than others in starting to cut rates.

Based on all three indicators, the Bank of Canada appears to be ready to start cutting interest rates, as do the RBNZ and the South African Central Bank. Brazil and Mexico still have very high real interest rates, and they seem to have a lot of room to cut rates as the global rate cut cycle widens.

In addition, for emerging markets, as more central banks begin to cut interest rates, it becomes easier for other central banks to follow suit, and the risk of currency depreciation has lessened.

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