Many central banks from the USA to Brazil, from Europe to Japan will meet next week. The messages given at these meetings will be followed closely.
1. THE ROPES ARE IN IRAN’S HANDS
Expectations that the war in the Middle East will end in a short time are gradually weakening.
Although US President Donald Trump said that the war would end when he said “it’s over”, Iran’s closing of the Strait of Hormuz, its attack on oil tankers in the Persian Gulf with kamikaze boats, and its attack on the energy facilities of the Gulf countries show that the war is gradually spreading.
Attacks on energy producers in the Gulf and Iran’s new Supreme Leader Mojtaba Khamenei’s call yesterday to keep the Strait of Hormuz closed caused the daily barrel price of oil to rise above 100 dollars.
Even if a ceasefire is reached soon, it may take a long time for trade in oil, natural gas, fertilizer and other petrochemicals to return to normal.
The war’s increase in energy prices caused inflation and interest expectations to change this year.
2. DO THE EXPECTATIONS OF INTEREST REDUCTION CONTINUE?
The employment data announced in February in the USA, which was below market expectations, supports the interest rate cut that President Donald Trump has been demanding for a long time.
The US Federal Reserve (Fed), which will complete its two-day monetary policy board meeting next Wednesday, will be under serious pressure regarding its predictions for the coming period.
The Fed, which started an interest rate reduction cycle last year to support the labor market, is expected to keep interest rates constant for the second time in a row at this meeting.
Fed funds futures show investors are lowering their expectations for a rate cut this year. Rapidly rising oil prices have further increased concerns about inflation, which is already above the Fed’s target. This could lead to a new conflict between the Fed and Trump in the coming months.
The Bank of Canada will also meet on Wednesday. Traders predict that the central bank will raise interest rates by 25 basis points by the end of the year.
3. ECB, SWITZERLAND AND BOE INTEREST RATE DECISIONS
Monetary policy committee meetings of the European, Swiss and British central banks will be held next Thursday.
Europe, which is dependent on energy imports, is facing a difficult test due to the rapid rise in oil prices. The bad memories created by the statement that the first rise in inflation in 2022 was temporary are still remembered.
While markets now expect the European Central Bank (ECB) and the Swiss National Bank (SNB) to increase interest rates this year, the interest rate cuts expected from the Bank of England (BoE) have quickly fallen off the agenda.
ECB President Christine Lagarde, who has been emphasizing for months that the ECB is in a “good place”, is likely to face tough questions about how she sees the current situation.
The BoE, on the other hand, has much narrower room for action. Just a few weeks ago, an interest rate cut was expected to be made in March, but this interest rate cut has been completely shelved due to inflation facing a new upward pressure.
4. WELCOME
In G10 countries, only the Reserve Bank of Australia and the Bank of Japan (BoJ) raised interest rates.
The energy bottleneck caused by the war in the Middle East led to an energy crisis, especially in South Korea and Japan, which receive almost all of their oil from the Gulf countries.
Analysts give a 70 percent chance of a 25 basis point interest rate increase at the Reserve Bank of Australia’s meeting next Tuesday.
For the BoJ, the situation is much more complicated. The possibility that the increase in energy prices could deal a double blow to the import-dependent Japanese economy with both low growth and high inflation has upset the expectations for the next interest rate increase.
5. WHICH DIRECTION?
Central banks of developing countries have changed their course from interest rate cuts to interest rate increases, but this is not the case for everyone.
It has long been expected that the authorities in Brazil, which will announce its interest rate decision next Wednesday, will initiate a relaxation cycle in interest rates, which they have kept at the peak of the last 20 years at 15% since July.
However, the rapid increase in oil prices due to the Iran war caused analysts to change their forecasts. While some experts now expect a 25 basis point interest rate cut instead of 50 basis points, others think that the interest rate cut may be shelved completely due to inflation pressure.
While the Central Bank of the Republic of Turkey (CBRT) is pausing interest rate cuts, central bank officials in Poland may be considering waiting a while for the next cut after this month’s interest rate cut.
