Affected by the epidemic, central banks around the world maintained relatively loose monetary policy last year. Since the beginning of this year, as the impact of the epidemic has weakened and economic recovery has become the main focus, inflation concerns have also emerged. In the first quarter, Brazil, Turkey and Russia raised interest rates one after another, becoming the first economies to enter the interest rate increase cycle since the outbreak. However, as the epidemic has not been completely contained and the level of economic activity has not yet returned to the pre-epidemic level, the central banks of most developed countries have announced that they will continue to maintain a loose monetary environment, and the monetary policy choices of central banks around the world have also come to a crossroads.
Since March, expectations of whether the Fed will tighten policy have been relatively high. In the minutes of a recent meeting, the Fed made it clear that it would keep interest rates unchanged and raise inflation expectations. In order to achieve the dual goals of maximum employment and price stability, in terms of interest rate, the FOMC decided to keep the target range of federal funds interest rate at 0-0.25% until the maximum employment and inflation rate reached 2% and slightly exceeded 2% in a period of time; The interest rate of excess reserves was maintained at 0.1%; Maintain the main credit rate at 0.25%.
Recently, US Federal Reserve Chairman Powell said that as the US economy recovers and makes substantial progress, the US Federal Reserve will reduce its bond purchase.
The European side will also keep interest rates unchanged and speed up emergency bond purchase. The Council of the European Central Bank has decided that in terms of interest rates, the main refinancing rate, the marginal lending rate and the deposit rate will remain unchanged at 0%, 0.25% and – 0.50% respectively. At the same time, maintain current or lower interest rates until the inflation outlook converges close enough but below 2%. In terms of asset acquisition, we decided to speed up the acquisition of PEPP and flexibly acquire it according to the market situation to prevent the tightening of financing conditions.
Japan also said it would keep interest rates unchanged and clarify the yield range. At the interest rate meeting in March, the Bank of Japan decided to keep the policy interest rate at – 0.1%, and will continue to purchase the necessary amount of Japanese government bonds without an upper limit, so as to keep the yield of 10-year Japanese government bonds at around 0.
Recently, the International Monetary Fund (IMF) released the latest global economic outlook, raising the global GDP growth forecast for 2021 by 0.5 percentage points to 6.0%, which is more optimistic about the growth prospects of developed economies. At the same time, IMF President Georgieva called on developed countries not to withdraw from easing policy too soon, because it will put pressure on other emerging markets with slow recovery.
Unlike the central banks of the developed countries mentioned above, the representative central banks of emerging market countries usually choose to raise interest rates out of fear of rising inflation.
The central bank’s Monetary Policy Committee announced last month that it would raise the benchmark interest rate by 0.75 percentage point to 2.75% from the previous 2%. This is the first time that Brazil’s central bank has raised its benchmark interest rate since 2015. In explaining the interest rate increase, the monetary policy committee of the Central Bank of Brazil said that the interest rate increase was imperative because the expectation of future inflation exceeded the target of monetary policy level. However, although the short-term inflation pressure is greater and more lasting than expected, the committee still believes that the current impact is temporary.
On March 19, the Central Bank of Russia raised the benchmark interest rate by 25 basis points, from 4.25% to 4.5%, the first time since 2018. Russia’s domestic inflation rate rose from 5.2% in January this year to 5.8% in March, mainly affected by the rising demand in the domestic market and the rising inflation rate. On April 23, the Central Bank of Russia unexpectedly raised the key interest rate by 50 basis points to 5%, and the mainstream market expectation is to raise the interest rate by 25 basis points to 4.75%.
In addition, indicators from emerging markets such as India, Malaysia and Thailand show that expectations of tightening monetary policy are increasing. In addition to emerging economies, some developed economies are expected to raise interest rates ahead of schedule.