As major central banks around the world intensively announce interest rate decisions in November, the path of monetary policy adjustments at the end of the year has become the core focus of the financial market. From the latest developments, affected by the dual impacts of repeated inflationary pressures and uncertain economic prospects, developed economies have shown a “differentiated wait-and-see” stance. The probability of a rate cut in the UK has risen significantly, while the US and the EU are likely to keep interest rates unchanged. Emerging markets generally adhere to a prudent stance, prioritizing stability in managing their policy pace.
The Bank of England’s decision to keep its benchmark interest rate unchanged at 4% in its November monetary policy meeting has not overshadowed market expectations of a rate cut in December. Governor Andrew Bailey publicly stated that inflation may have peaked, and the December decision will focus on considering the fiscal budget, a statement interpreted as a clear signal of policy easing. Data shows that the UK’s current inflation rate of 3.8% remains the highest among the G7 countries, while its interest rate level of 4% is twice that of the European Central Bank. The high-interest environment has obviously suppressed economic growth. However, inflation data stabilized in September, and the Bank’s Monetary Policy Committee predicts that inflation will gradually decline in October and November as the economy weakens and the job market deteriorates, providing room for a rate cut. Analysts from multiple institutions point out that if subsequent inflation data meets expectations, the probability of the Bank of England cutting interest rates by 25 basis points in December has exceeded 60%.
In contrast to the UK, the likelihood of the Federal Reserve and the European Central Bank adjusting their policies at the end of the year continues to decrease. The US government shutdown has disrupted the release of key economic data, and core indicators such as the October Consumer Price Index and unemployment rate may not be released on time, putting the Federal Reserve in a “data vacuum” predicament. Federal Reserve Chairman Jerome Powell has clearly stated earlier that without sufficient data support, the Fed will not easily launch another interest rate cut in December. Although the federal funds rate was lowered to the range of 3.75%-4.00% in October, Vice Chairman Philip Jefferson recently emphasized that monetary policy is already close to the neutral level, and extreme caution must be exercised in subsequent actions.
The European Central Bank has continued its stance of keeping policy unchanged for three consecutive months. Member of the Governing Council Boris Vujčić stated that the current monetary policy is “in a good state”. Although the euro zone’s inflation rate slightly rose from 2.0% to 2.2% in September, it was mainly driven by one-way service price increases and did not trigger overall inflationary pressures. Economists generally believe that the European Central Bank will maintain a balance between “controlling inflation” and “stabilizing growth” and will not rashly adjust interest rates in the short term.
The Bank of Japan still adheres to the accommodative camp, keeping its policy interest rate unchanged at 0.50% in the October decision. Governor Kazuo Ueda’s “dovish” remarks even triggered a short-term sell-off of the yen. HSBC pointed out that under the new political landscape, the threshold for the Bank of Japan to tighten policies has increased significantly, but the process of policy normalization will gradually advance, and the policy interest rate is expected to rise to 1.5% by 2027.
