How were the first interest rate decisions of central banks in 2024?

Following nearly two years of "hawkish" policies in most global economies, while "dovish" expectations came to the fore in the new year, major central banks around the world kept their policy rates unchanged in their first monetary policy meetings of the year.

While the negative effects of the COVID-19 pandemic on production and supply chains, as well as rising geopolitical risks, led to an increase in inflation worldwide, including in developed countries, it was emphasized in the recent meetings of central banks that the "hawkish" steps have come to an end.

However, while the "dovish" pricing that strengthened towards the beginning of the year, starting in March, lost momentum with the policy texts announced by the banks, the expectation that major central banks would start interest rate cuts later than market forecasts came to the fore.

FED KEPT INTEREST RATES UNCHANGED

The US Federal Reserve (Fed) Federal Open Market Committee (FOMC) kept the policy rate unchanged at the 5.25-5.50 percent range, the highest level in 23 years, in line with expectations.

In the statement made by the Fed, it was stated that recent indicators suggest that economic activity has been expanding at a "solid" pace, and that employment gains have slowed since the beginning of last year but remain strong.

In money markets, the probability of the Fed starting its first interest rate cut in March was priced at 53 percent before Powell, but it fell to 35 percent following these statements. In money markets, it is priced that the bank will start interest rate cuts with a 92 percent probability at the May meeting.

CANADA KEPT INTEREST RATES UNCHANGED

The Bank of Canada (BoC) kept its policy rate unchanged at 5 percent, the highest level in the last 22 years, in line with expectations.

The BoC emphasized that its monetary tightening policy continues. Noting that global economic growth has slowed as inflation has gradually decreased in most economies, the statement indicated that economic growth in Canada has stalled since mid-2023 and will likely remain near zero until the first quarter of 2024.

EUROPE ALSO KEPT ALL 3 KEY POLICY RATES UNCHANGED

While the key economic data announced in Europe led to continued uncertainty, the European Central Bank (ECB) kept all three key policy rates unchanged last week.

Stating that short-term economic indicators remain weak, Lagarde emphasized that an improvement in the economy will be seen in the medium term and that the labor market, which is the most important reflection of the economy, continues to remain quite strong.

The Bank of England (BoE) also did not change its policy rate, which is at its highest level in the last 15 years at 5.25 percent, in line with expectations.

BoE Governor Andrew Bailey stated that the Bank is not yet at a point where it can take steps to cut the policy rate and that he does not want to speculate on interest rate cuts.

The Central Bank of the Republic of Türkiye (TCMB), while entering a process of monetary tightening, has increased the policy rate from 8.5 percent to 45 percent since June.

While the TCMB raised the policy rate by 250 basis points last week, the announcement from the bank stated, "The Committee has assessed that the level of monetary tightness required for the establishment of disinflation has been reached and that this level will be maintained as long as necessary."