It is Central Banks’ week par excellence. All eyes are on the Federal Reserve’s decision, which will meet over two days, Tuesday and Wednesday. It is the first meeting of the year, as it is expected to slow the pace of its federal interest rate increases after a slowdown in the pace of rising inflation.
Wall Street expects the FOMC to raise the interest rate by 25 basis points at the end of its meeting.
The president of the Federal Reserve Bank of Philadelphia, Patrick Harker, said days ago that he expects to raise interest rates several more times this year, noting that “the days of 75 basis point increases are over, in my opinion. Increases of 25 basis points would be appropriate in the future,” he said.
European Central Bank
A day after the Federal Reserve meeting, the European Central Bank meets on Feb. 2.
But unlike the Federal Reserve, the ECB is not yet ready to reduce the pace of its rate hikes.
ECB President Christine Lagarde has repeatedly used the phrase “staying the track” when referring to upcoming interest rate decisions, but some market watchers doubt the ECB will hold its hawkish stance for much longer.
The European Central Bank went into tightening mode last year with four rate hikes in a bid to control high inflation across the eurozone. These decisions pushed the key deposit rate from -0.5 percent to 2 percent.
The latest data showed a two-month decline in headline inflation, but this is still well above the ECB’s 2 percent target.
There have been several statements by ECB officials about how they need to continue raising interest rates, including Lagarde’s comments that “we will continue on the path to ensuring that inflation returns in due course.”
A Reuters poll earlier this week showed markets expected the ECB to pause rate hikes in the second quarter once the deposit rate was at 3.25 percent.
.. Bank of England
The Bank of England meeting falls on the same day as the European Central Bank meeting.
The Bank of England is set to keep its options open on whether UK interest rates will peak at 4.25 percent or 4.5 percent, after raising rates for the tenth time in a row.
The Bank of England is also expected to signal that once interest rates peak, it will need to keep them high for some time before it is certain that high inflation will be defeated.
The bank’s Monetary Policy Committee is expected to raise interest rates by 0.5 percentage points to 4 percent on Thursday, according to a large majority of economists polled by Reuters.
While interest rate hikes are almost universally expected, there is less consensus on how much work the Bank of England will need to do next in order to cool the economy sufficiently to control inflation.
Bank of England Governor Andrew Bailey said last week that the road to lower inflation would be “easier” than previously thought with lower wholesale gas prices limiting the depth of deflation needed to quell rising prices.
But he categorically rejected suggestions that financial markets’ expectations that UK interest rates would peak at 4.5 percent were wrong.
.. And in Egypt as well
In the Arab world, the Central Bank of Egypt will hold its meeting on Thursday. The local market is awaiting the decision of the bank’s Monetary Policy Committee amid scenarios of raising interest rates by between 1% and 2% or stabilizing at current rates.
The Central Bank of Egypt (CBE) last year raised interest rates by about 300 basis points to range from 16.25 percent on deposits, 17.25 percent on lending, 16.75 percent on the bank’s main operation rate, and 16.75 percent on credit and discount rates.
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