As we move into 2024, the global monetary policy landscape finds itself at a significant crossroadsAfter two years of stringent policy tightening, many central banks worldwide are beginning to ease their monetary stancesHowever, within this broad leniency, there exist marked disparities among countries in terms of direction, stance, frequency, magnitude, and the interplay between reality and expectationsThese variations not only reflect lively shifts in short-term economic data but also provoke deeper contemplation regarding the evolving influences that will shape mid- to long-term monetary policy decisions.

The first point of contention in the monetary policy environment of 2024 lies in the fundamental question of "to cut or not to cut." By mid-December, analysis from the Bank for International Settlements reveals that, among 38 prominent central banks, a significant majority have shifted towards a more accommodating monetary posture

Specifically, 29 of these banks have enacted varying degrees of interest rate cuts.

Yet, amidst the proliferation of easing policies, the Australian and Japanese central banks stand out for their distinct approachesCentral to this divergence in monetary policy is the common challenge of inflation that both nations are grappling with.

In Japan, persistent depreciation of the yen has contributed to import-driven inflation, compounded by the most significant wage increases seen in 30 years during the springIn response, the Bank of Japan opted to raise interest rates in March, signaling an end to its era of negative interest rates and concluding its yield curve control policy.

Conversely, the Reserve Bank of Australia has maintained that returning inflation to target within a reasonable time frame remains its foremost priorityAlthough overall inflation in Australia has significantly decreased and is expected to remain subdued for a time, underlying inflationary pressures have begun to rise, prompting the Australian central bank to maintain elevated interest rates as a consistent policy into 2024.

The second significant disagreement surrounding the monetary policy environment of 2024 centers on the question of "how much to cut?" Among major economies initiating rate cuts, the intensity of these reductions varies significantly

• China's Chip Industry Sees Progress
• The Logic Behind Global Commodity Pricing
• Guoxuan Deal Adds $1.2 Billion to Volkswagen Profit
• Dow Jones Posts Nine-Day Losing Streak
• Argentina's GDP Up Quarter-on-Quarter, Down Year-on-Year

For instance, central banks in the Eurozone, Canada, New Zealand, Switzerland, and Sweden have enacted cuts exceeding 100 basis points, while the UK and US have adopted a more cautious stance.

For those economies leaning towards more substantial cuts, their underlying fundamentals share notable similarities – weakened growth momentum and rising deflationary risks following an extended period of high-interest rate repression.

Capitalizing on this logic, the Swiss National Bank has been notably decisive compared to its counterpartsIn March, with projections indicating only weak economic growth and the likelihood of inflation declining over the next three years, the Swiss central bank announced a 25 basis point rate cut, marking it as the first among major developed economies to initiate cutsThis was followed by further reductions in June and September, culminating in a 50 basis point adjustment by December, resulting in a total of four cuts throughout the year.

Meanwhile, the European Central Bank undertook a robust increase of 450 basis points in interest rates throughout 2022 and 2023 to combat inflation

However, the enduring fragility of economic growth in the Eurozone has tempered these efforts, causing the ECB to roll out its rate cuts earlier than the Federal Reserve, ultimately reducing its main refinancing rate from 4.50% at the start of the year to 3.15% after multiple cuts.

A similar rationale has been evident in the Bank of Canada’s approach to rate cutsAfter a meeting in December, Governor Macklem acknowledged the challenges facing economic recovery, particularly in the labor marketSince June, the central bank has reduced rates by a total of 175 basis points.

It is noteworthy that external uncertainties also play a crucial role in accelerating the rate cut processes among certain developed economiesFor example, the Reserve Bank of New Zealand reduced its benchmark rates by 25 basis points in August and subsequently by 50 basis points in October, driven by domestic inflation and growth challenges

At the end of November, the RBNZ emphasized geopolitical conditions and policy uncertainties expected to exacerbate economic and inflation volatility into 2025, prompting another significant cut.

The third dimension of divergence in the 2024 monetary policy environment revolves around the timing of cuts – "early vslate." In comparison, both the Federal Reserve and the Bank of England have not only maintained smaller cuts relative to other developed economies but have also adopted a more tortuous path in the decision-making process regarding rate reductions.

As we reflect on the year’s initial outlook, many market institutions anticipated the Federal Reserve would kickstart cuts as early as the second quarter, with expectations for approximately 150 basis points worth of cuts throughout the yearSimilarly, the Bank of England was projected to lower rates by around 100 basis points amid weakening economic fundamentals.

By the end of 2023, various institutions predicted that the risks of a weakening U.S

economy and potential recession would provide a substantial anchor for easing, yet upon the release of American economic data in the first quarter, expectations for cuts were reevaluatedAs the second quarter progressed, concerns shifted towards potential overheating in the U.Seconomy, again altering expectationsBy the third quarter, sluggish employment data reignited predictions of impending cuts, leading to rate reductions in September and November totaling 75 basis points.

In contrast, the Bank of England grappled with more complex pressures and challengesEarly in the year, a decline in the UK consumer price index indicated that the BoE might initiate cuts sooner than anticipatedDespite a decrease in the CPI to 2%, sustained high inflation in domestic service sectors kept the bank from actingFinally, in the third quarter, Governor Bailey announced a modest rate cut of 25 basis points, raising concerns over potential future inflation driven by ongoing supply chain disruptions

By November, a decline in the services PMI prompted further cuts, with a final reduction resulting in the BoE ending the year as the developed economy with the smallest cut, at only 50 basis points.

When reflecting on the developments of 2024, it becomes evident that the trajectory of monetary policies among developed economies diverges significantly from early expectationsThis divergence stems from the distinct trajectories of inflation and employment data, as well as from unexpected variances introduced by political interferenceConsequently, the future landscape of monetary policy into 2025 appears increasingly nebulous; the greater uncertainties and amplified political influences present rising challenges.

Even now, as observations from financial asset curves suggest, market trading entities believe that major developed economies retain some space for future rate cutsHowever, numerous institutions continuously revise downward their expectations for these cuts, a development rooted in persistent inflationary tendencies and risks of secondary inflation.

Despite a notable decline in inflation rates across globally significant economies from their peaks in 2022 and 2023, figures continue to remain elevated by one to two percentage points relative to pre-pandemic levels