A wave of interest rate cuts has swept across the world, with the Federal Reserve making a rare 50 basis point interest rate cut

After the Federal Reserve made a rare 50 basis point rate cut, a wave of rate cuts swept across the world. On September 19, the Hong Kong Monetary Authority, the Central Bank of Kuwait, the Central Bank of Bahrain, the Central Bank of the United Arab Emirates, and the Central Bank of Qatar collectively announced rate cuts. Before the Federal Reserve, many central banks had already chosen to "preemptively" cut interest rates, including the Bank of Canada, which has cut rates three times in a row.

It is worth noting that in the "interest rate cut wave", the Bank of Japan has become the most special existence, and may also be an uncertain risk point in the global financial market. At present, the market is paying close attention to the interest rate decision of the Bank of Japan tomorrow and the latest statement of Bank of Japan Governor Kazuo Ueda. The market generally expects that the Bank of Japan will maintain the key overnight call rate at 0.25%, but the December meeting may raise interest rates again, which may have a certain impact on the global market.

The direction of domestic monetary policy is also the focus of market attention. Many institutions believe that my country's monetary policy tone has gained a rare time window for adjustment, and has room to promote a new round of reserve requirement ratio cuts and interest rate cuts.

On the morning of September 19, the Hong Kong Monetary Authority announced that it would cut the benchmark interest rate by 50 basis points to 5.25%.

It should be pointed out that Hong Kong, China implements a linked exchange rate system, so it is not surprising that it followed the Fed's interest rate cut. According to the official website, under the linked exchange rate system, the Hong Kong dollar exchange rate remains stable in the range of 7.75-7.85 Hong Kong dollars to 1 US dollar.

In addition to the Hong Kong Monetary Authority, many central banks have also announced interest rate cuts. Specifically:

The Central Bank of Kuwait announced a 25 basis point interest rate cut to 4%;

The Central Bank of Bahrain cut its overnight deposit rate by 50 basis points to 5.50%;

The UAE Central Bank cut its overnight deposit rate by 50 basis points to 4.90%;

The Qatari Central Bank was more aggressive, cutting its deposit rate by 55 basis points to 5.2%, its repurchase rate by 55 basis points to 5.45%, and its lending rate by 55 basis points to 5.70%.

In fact, before the Fed cut interest rates, several central banks had already chosen to "preemptively" cut interest rates:

On September 18, the Indonesian central bank decided to cut the benchmark interest rate by 25 basis points to 6%. At the same time, it lowered the deposit rate to 5.25% and the loan rate to 6.75%.

On September 12, the European Central Bank announced its second interest rate cut this year, lowering the deposit facility rate by 25 basis points, the main refinancing rate and the marginal lending rate by 60 basis points, and the three major interest rates were reduced to 3.50%, 3.65% and 3.90% respectively;

On September 4, the Bank of Canada cut its key interest rate by 25 basis points to 4.25%, marking the third consecutive rate cut this year. In July and June this year, the Bank of Canada cut interest rates twice in a row, lowering the benchmark interest rate to 4.5%. Another 25 basis point rate cut in October is almost certain.

On August 15, the Philippine central bank announced a 25 basis point interest rate cut;

On August 14, the Reserve Bank of New Zealand unexpectedly announced a 25 basis point interest rate cut, lowering the benchmark interest rate from 5.5% to 5.25%;

On July 31, the Bank of England announced a 25 basis point interest rate cut, lowering the base rate from 5.25% to 5%, the first interest rate cut since March 2020;

In June this year, the ECB cut the main refinancing rate, marginal lending rate and deposit facility rate by 25 basis points, which was the first rate cut by the bank since 2019;

In May this year, the Swedish Central Bank announced a 25 basis point interest rate cut, the first interest rate cut by the central bank in eight years.

In March this year, the Swiss National Bank fired the "first shot" of the global interest rate cut in 2024, and Switzerland became the first developed country in Europe and the United States to announce an interest rate cut; in June, the central bank again lowered borrowing costs to 1.25%.

Against the backdrop of a global "wave of interest rate cuts", the Bank of Japan has become the most special entity and an uncertain risk point in the global financial market.

At the end of July this year, the Bank of Japan unexpectedly announced an interest rate hike, deciding to adjust the policy rate from 0-0.1% to 0.25%. This interest rate hike decision once caused a sharp drop in global markets.

Judging from the feedback from the capital market, the Fed's interest rate cut seems to have been fully priced in. The market is currently paying close attention to the Bank of Japan's interest rate decision on September 20 and the latest statement by Bank of Japan Governor Kazuo Ueda, which may have a certain impact on the global market.

The market currently generally expects the Bank of Japan to keep its key overnight lending rate unchanged at 0.25%, but may raise interest rates again at its December meeting.

Analysts say that the outlook for the Bank of Japan's monetary policy has become as critical as that of the Federal Reserve, given the potential impact of the Bank of Japan's policies on the yen carry trade. The recent statements by Bank of Japan officials and the current market's general expectation are that the Bank of Japan will continue to raise interest rates.

Nineteen of the 36 economists surveyed by the Japan Center for Economic Research expect the Bank of Japan to raise interest rates again in December. Before the Bank of Japan's meeting on December 18-19, the bank will focus on key indicators to see if the economy is on track, including the Bank of Japan's September and December tankan surveys, third-quarter GDP data and corporate earnings for the quarter.

Separately, most economists polled by Reuters expect the Bank of Japan to raise interest rates again this year, with more than three-quarters betting the next hike will come in December.

Masahiro Ichikawa, strategist at Sumitomo Mitsui DS Asset Management, said that if Kazuo Ueda says at a news conference after the Sept. 20 rate decision that the economy and prices are on track but the central bank needs to keep a close eye on the market, it could be a signal for a rate hike in December or January.

Huatai Securities analyst Yi Yan believes that the Bank of Japan's interest rate meeting is also worthy of attention. As the gap between US and Japanese monetary policies continues to narrow and Japan's endogenous growth momentum is restored, wage growth has exceeded expectations, which means that the yen has the momentum to appreciate further in the medium and long term, and may also bring about a "spillover effect" of appreciation expectations for the renminbi.

The Fed's sharp interest rate cuts may narrow the interest rate gap between China and the United States. Many institutions believe that my country's monetary policy tone has gained a rare time window for adjustment, and has room to promote a new round of reserve requirement ratio cuts and interest rate cuts.

Lian Ping, chairman of the China Chief Economist Forum, predicts that this round of the Fed's interest rate cut cycle may last for 14 to 16 months. In this context, Lian Ping believes that my country's monetary policy tone has gained a rare time window for adjustment, and has room to promote a new round of reserve requirement ratio cuts and interest rate cuts.

Lian Ping said that from the perspective of the domestic environment, macroeconomic and financial indicators are relatively weak, and monetary policy is urgently needed to further support. Making reasonable adjustments to the tone of monetary policy as soon as possible will help boost market confidence and change the current situation of generally weak market expectations. From the perspective of policy coordination, in order to enhance the counter-cyclical adjustment effect, it is necessary to make corresponding adjustments to the tone of monetary policy at this time, from "prudent" to substantial "moderately loose".

On September 19, Liu Gang, a researcher at CICC Research Department, said that if the domestic easing is stronger than that of the Federal Reserve, it will bring a greater boost to the market; if the magnitude is limited, which is also a more likely scenario under current reality constraints, then the impact of the Federal Reserve's interest rate cut on the Chinese market may be marginal and local.

In anticipation of policy easing in September, the market is increasingly calling for a reserve requirement ratio cut. Institutions including Zheshang Securities, Guojin Securities, and Caixin Securities have all expressed the view that the People's Bank of China may cut the reserve requirement ratio in the near future.

Huajin Securities analyst Qin Tai believes that it is inevitable for monetary policy to shift to a supportive neutral stance. Supply determined by demand and sufficient volume and stable prices are the more reasonable monetary policy expectations at present, and he maintains the forecast of a 50bp cut in the reserve requirement ratio in September.