Global central bank turmoil: Switzerland cuts interest rates, Japan unexpectedly raises interest rates, the differences between the Federal Reserve and the Bank of England are highlighted, an

In the past week, major central banks around the world have reached key nodes one after another. Among them, the Swiss National Bank became the first major economy to cut interest rates, while the Bank of Japan unexpectedly raised interest rates for the first time in 17 years. The Bank of Japan's move shows the direction of long-term negative interest rate policy, while the Swiss National Bank's interest rate cut was affected by the strong Swiss franc. Meanwhile, the Federal Reserve kept interest rates steady but expectations for a rate cut remain, while the Bank of England sent a dovish signal, albeit with disagreements.

1. Changes and prospects of the Bank of Japan

The Bank of Japan unexpectedly raised interest rates for the first time in 17 years, showing its adjustment to its long-term negative interest rate policy. Analysts pointed out that the mid- to long-term impact of this move may be more important than market expectations, and the stability of Japan's inflation rate remains a key issue. In the future, the Bank of Japan may adjust its medium-term policies, including shrinking its balance sheet and raising interest rates.

Tomoya Masanao, co-director of Pimco Japan, said the mid- to long-term impact of this shift may be more important than market expectations, and the key question is where Japan's inflation rate will stabilize after the epidemic.

Masanao added: “Although the Bank of Japan reaffirmed its commitment to the 2% inflation target, we believe it is unlikely that the Bank of Japan will maintain easy monetary policy indefinitely to firmly achieve the 2% target. The Bank of Japan’s medium-term policy adjustments may involve Balance sheet reduction and rate hikes. Despite possible headwinds from a global economic slowdown and interest rate cuts by other major central banks, the Bank of Japan remains prepared to slowly but surely reduce its unusually large balance sheet."

2. The Swiss National Bank’s interest rate cuts and economic outlook

The Swiss National Bank became the first major economy to cut interest rates by 25 basis points and noted that inflation is likely to remain below 2%. Analysts pointed out that the SNB's decision was affected by the strength of the Swiss franc, and that a continued strengthening of the currency may bring deflation risks to the economy and reduce export competitiveness.

Strategists at BCA Research said in a report on Friday that "if the inflation rate falls below 2%, continued currency strength will bring deflation risks to the Swiss economy. In addition, a strong Swiss franc will reduce the competitiveness of Swiss exports." This is especially true given that the Swiss National Bank has highlighted weak global economic activity as the main risk.

3. Fed’s policy outlook

The Federal Reserve kept interest rates unchanged, but there are still market expectations for a rate cut. The Federal Reserve is expected to cut interest rates for the first time at its June meeting, and expectations of a rate cut remain despite strong economic growth.

Market futures are pricing in a roughly 70% chance of the Fed's first rate cut at its June 11-12 meeting, according to CME Group's FedWatch tool. Rate cut expectations persist, prompting the Federal Reserve to slightly increase its forecast for longer-term policy rates, despite expectations for strong economic growth, falling unemployment and slightly higher-than-expected core inflation.

Whitney Watson, co-head of fixed income and liquidity solutions at Goldman Sachs, said: "The small increase in long-term policy rate forecasts is both negligible and noteworthy. It is negligible because market expectations are already much higher, but noteworthy because, It reinforces the market's recent view that the rate-cutting cycle may be shallower than initially expected."

4. Dovish signal from the Bank of England

The Bank of England kept interest rates unchanged but sent a clearly dovish signal. While some members supported a rate cut, divisions remained. Analysts pointed out that interest rate cuts will still be affected by evidence of persistence of inflation, and the market is low on the possibility of the Bank of England cutting interest rates in May.

Sanjay Raja, UK economist at Deutsche Bank, stressed that the rate cut will still keep bank interest rates in restrictive territory, but he laid the foundation for an adjustment strategy as inflation and wage pressures decline. However, it pointed out that "the evidence needed to cut interest rates is not yet clear. Although the Monetary Policy Committee pointed out that further evidence on the persistence of inflation is needed to change the stance of monetary policy, the minutes also acknowledged that members were not clear about the evidence that the central bank may need to cut interest rates. There is disagreement about the extent.”

5. Outlook of central bank policies of various countries

The policy direction of global central banks is affected by factors such as inflation, economic growth, and exchange rates. Future policy adjustments may include interest rate increases, interest rate cuts, and adjustments to other monetary policy measures. The market will pay close attention to the policy measures of central banks of various countries.