The coming 12 months are shaping up as the year of the interest-rate cut.

After racing ahead with the most aggressive tightening campaign in decades during 2022 and 2023, central banks around the world are poised to begin easing monetary policy as inflation continues to retreat.

The shift is captured by Bloomberg Economics, whose aggregate gauge of rates across the world shows a decline of 128 basis points over the year, mostly led by emerging economies.

Among such central banks, those in Brazil, the Czech Republic and others have already started that process.

The US Federal Reserve will lead the pivot for richer countries after its policy makers signaled 75 basis points of cuts for the year, marking an abrupt shift from previous warnings that rates could still go higher through much of 2024.

Others, such as the European Central Bank, are more reticent to signal cuts, but Bloomberg Economics expects the first easing there is likely to materialize in June. Markets are betting the Bank of England will cut that month too.

Japan will remain the standout among its peers, with Governor Kazuo Ueda expected to tighten policy at last, by ending the world’s last negative rate.

For emerging economies, Argentina and Russia are set to push through steep rate cuts. Mexico’s central bank, which had been resisting such action, is also expected to begin easing, according to Bloomberg Economics analysis.

What Bloomberg Economics Says:

“Central banks are looking forward to a victory lap as inflation tracks back to target with only a modest blow to growth. Markets cheering the policy pivot will provide the appropriate soundtrack. The reality, though, is that monetary policy didn’t have much to do with post-pandemic price pressure on the way up, and can’t claim too much of the credit on the way down. One takeaway is that central bank tools are narrow, and the sources of inflation risk wide.”

—Tom Orlik, global chief economist

Plans to bring down rates hinge on inflation continuing to slow. Skeptics warn that prices mostly remain some way from central-bank targets, and that policy will need to remain tight.

Still, readings on both headline and core inflation continue to cool, led by goods prices with the services sector expected to follow, allowing officials to begin taking steps to ease the burden of borrowing costs on households and businesses.

Here is Bloomberg’s quarterly guide to the outlook for the world’s top central banks, which set rate policy for a combined 90% of the global economy.

GROUP OF SEVEN

US Federal Reserve

* Current federal funds rate (upper bound): 5.5%
* Bloomberg Economics forecast for end of 2024: 4.25%
* Market pricing: Traders favor six quarter-point rate cuts this year with the first one expected by May.

Most Fed officials expect to cut rates this year, starting to unwind the most aggressive tightening campaign in four decades in response to falling inflation. But they’ve also emphasized that their moves depend on making further progress on prices, and will be guided by incoming data.

Policymakers forecast lowering rates by 75 basis points to 4.6% in 2024, according to the median projection released in December. Futures markets, however, are betting the Fed will cut rates six times this year, beginning with a likely quarter-point reduction in March.

Fed Chair Jerome Powell and several of his colleagues have stressed that the central bank can “proceed carefully,” suggesting they’re not in a rush. Powell said at his December press conference that it was premature to declare victory, though he acknowledged that the question of when to begin “dialing back” policy restraint had been discussed.

What Bloomberg Economics Says:

“The Fed has reached the end of its hiking cycle. With core inflation looking to be on track to approach Fed’s 2% target — by some key metrics – in March 2024, the FOMC likely will be able to respond to faltering growth and rising unemployment with a first rate cut then. We expect another 100 bps of cuts in the rest of the year, bringing the upper end of fed funds rates at the end of 2024 to 4.25%.”

—Anna Wong

European Central Bank

* Current deposit rate: 4%
* Bloomberg Economics forecast for end of 2024: 3.25%
* Market pricing: Traders are almost evenly split on expecting the first quarter-point reduction by March, but are near unanimous in betting on 1.5 percentage points of easing for the year.

In contrast to the Fed, ECB officials are loathe to talk about the possibility of rate cuts. Despite inflation having receded much more forcefully than imagined, concerns remain about the pace of wage increases in the 20-nation euro zone. Clarity on whether such trends are cooling is unlikely before the second quarter of 2024.

Governing Council members have refused to countenance any imminent cut — going up against market bets for a reduction within months as the region’s economy flirts with its first recession since the pandemic.

The key now will be whether Europe experiences a mild downturn that would still count as a soft landing, or whether the lingering knock-on effects of the ECB’s unprecedented ramp-up in borrowing costs trigger a slump harsh enough to shift monetary-policy settings earlier than planned.

What Bloomberg Economics Says:

“The ECB has finished hiking. Underlying inflation is falling, surveys are pointing to a significant deterioration in activity and credit extension is weaker than it was in the depth of the euro crisis. In addition, the mood music has changed globally. Unless the economy were to tank, the ECB will still need time to be satisfied that inflation is on the right trajectory. We expect the first cut in June 2024. However, the risks are heavily skewed toward earlier action.”

—David Powell

Bank of Japan

* Current policy-balance rate: -0.1%
* Bloomberg Economics forecast for end of 2024: 0%
* Market pricing: Money markets are wagering on a 10-basis-point cut by July but less than 20 basis points of cumulative easing by year-end.

The question for Bank of Japan watchers is when it will end the world’s last negative rate, not if. After succeeding in transforming the yield curve control program into a flexible insulator against sudden yield rises in his first year at the helm, Governor Kazuo Ueda will now parse incoming data to assess the stability of inflation trends.

An earthquake on New Year’s day convinced the minority of economists predicting fast action on rates to push back their timelines to match the mainstream view, which sees the bank’s first rate hike since 2007 coming in April. The preliminary results of spring pay talks in March will garner the most market attention in years, as the BOJ has made it clear that’s one of the key factors in its pursuit of a virtuous wage-inflation cycle.

What Bloomberg Economics Says:

“The BOJ has ramped up its communications efforts to set the scene for an eventual exit from YCC and negative rates. But it’s in no rush to make a move. What we still haven’t seen are clear signals from wages and inflation data that would convince the BOJ that its 2% target is secure. We see transition to a new framework occurring in the second half of 2024, most likely in July.”

—Taro Kimura

Bank of England

* Current bank rate: 5.25%
* Bloomberg Economics forecast for end of 2024: 4%
* Market pricing: Markets are firm in their belief that policymakers will deliver five quarter-point cuts this year, with the first such reduction likely coming in June.

Traders have also ramped up bets on a cut arriving as soon as May, despite BOE Governor Andrew Bailey insisting that it’s too soon to consider a policy pivot.

There’s growing speculation that the BOE will be forced to abandon the higher-for-longer messaging kept at its December meeting, which notably contrasted with more dovish communications from the Fed.

The BOE is likely to lower its inflation forecasts at the next meeting on Feb. 1 after November’s reading came in much lower than expected at under 4%.

While the UK may have suffered a minor recession in the second half of 2023, its growth picture is beginning to brighten. The BOE’s new projections could reflect lower borrowing costs expected by markets, softer inflation prints, and growing wages in real terms. The central bank will also provide its annual assessment of the economy’s medium-term growth potential in February.

What Bloomberg Economics Says:

“The outlook for CPI inflation has improved dramatically in recent months. We think it will fall below the BOE’s 2% target in the spring, providing ample space for the central bank to start easing. The first cut is likely to come in May, with rates ending 2024 at 4%.”

—Dan Hanson

Bank of Canada

* Current overnight lending rate: 5%
* Bloomberg Economics forecast for end of 2024: 4%
* Market pricing: Traders are split between betting on four and five 25-basis-point reductions in 2024, but are confident in pricing the first cut by June.

While Bank of Canada Governor Tiff Macklem has repeatedly said it’s too early to discuss cuts, economists and markets see the central bank starting to lower borrowing costs by the second quarter. In December, policymakers kept them unchanged for a third consecutive meeting, acknowledging a stalling economy while still keeping the door open to further hikes in case core inflation proves sticky.

How Canada’s highly indebted households continue to fare amid the highest rates in two decades remains a key consideration. Their shorter duration home mortgages roll over more quickly than those of their American counterparts, a big reason why economists see the country’s economy as more rate-sensitive.

Still, Macklem will likely be less inclined to declare victory than his peers. At the start of 2023 the central bank paused to assess the impact of its rate-hike cycle, prompting markets to immediately price cuts and contributing to a resurgence of inflationary housing activity. That’s not something they’ll want to risk repeating this time around.

In a recent summary of deliberations of the December meeting, the six members of the bank’s governing council increasingly agreed that rates were “sufficiently restrictive” to bring inflation back to the 2% target, suggesting their conversation is moving from how high to how long borrowing costs should weigh on economic growth. Still, the bank says it needs to see clearer evidence of further and sustained easing in underlying price pressures before rate cuts will be considered.

What Bloomberg Economics Says:

“Households and firms will continue feeling the pinch from higher prices and rates as the labor market cools along with broader economic activity. Though BOC Governor Macklem hinted that a policy pivot is on the horizon, we expect rate cuts to begin later in 1H’24 only after the data indicate the last mile on the road to 2% inflation can be achieved.”

—Stuart Paul

BRICS CENTRAL BANKS

People’s Bank of China

* Current 1-year medium-term lending rate: 2.5%
* Bloomberg Economics forecast for end of 2024: 2.2%

China’s economy is under pressure going into 2024 as domestic and overseas demand continues to falter. The central bank’s modest rate cuts have so far failed to alleviate deflationary threats, as consumer confidence wanes amid a record slump in the property market. While the country looks set to have achieved its roughly 5% growth goal, the next challenge is repeating it this year. That will likely take greater policy support due to a higher comparison base.

The PBOC is expected to cut rates and banks’ required cash reserves moderately, in line with its cautious approach. Expectations for a move on the one-year policy rate in mid-January are increasing following commercial banks’ deposit rate cut last month. The central bank has stepped up financing for the property sector and promised emergency funds to local governments facing huge debt repayments.

What Bloomberg Economics Says:

“The PBOC showed its easing stance with an 800-billion-yuan net cash injection via its one-year medium-term lending facility on Dec. 15, which was a record. Clearly, the economy needs more policy supports, as suggested by weak PMIs and soft inflation, and the central bank will continue to deliver. We expect the PBOC to resume cutting rates reducing banks’ required reserve ratio in 1Q24. The first rate cut can come as early as mid-January.”

—David Qu

Reserve Bank of India

* Current RBI repurchase rate: 6.5%
* Bloomberg Economics forecast for end of 2024: 5.5%

Reserve Bank of India Governor Shaktikanta Das wants to see inflation settle around the target 4% on a durable basis before he and other rate-setters consider a pivot.

Projections, though, don’t suggest inflation staying at those levels for long in 2024. Volatile food prices pushed up the consumer price index for the first time in four months in November, and the December print could turn out even higher. Even as monetary policy has very little impact on food prices, elevated rates have managed to moderate a sticky and difficult core.

The RBI’s focus has now shifted to ensuring food spikes are not transmitted to other segments of the economy. The benchmark repurchase rate has remained at 6.5% for five straight reviews through December and may stay there for a while longer while the RBI stamps demand further by making unsecured loans costlier. Growth, though, has surprised with a strong showing, forcing the central bank to raise its forecast by half a point to 7% for the fiscal year that will end in March.

What Bloomberg Economics Says:

“The RBI will cut rates in coming months to counter an incremental slowdown in growth — but only after the Fed moves first. Our US team expects a Fed cut in March. We see the RBI cutting in April and taking the repo rate down 100 bps to a terminal 5.5% by 4Q24. Even so, it’s still likely to keep liquidity tight, possibility by selling government bonds starting in March, to maintain an ‘actively disinflationary’ policy.”

—Abhishek Gupta

Central Bank of Brazil

* Current Selic target rate: 11.75%
* Bloomberg Economics forecast for end of 2024: 9%

Brazil’s central bank has shaved two percentage points from borrowing costs since August in an easing cycle that most analysts see extending through mid-2024. Board members, led by president Roberto Campos Neto, have pledged to carry on with half-point rate cuts through March.

Headline inflation has slowed to within the monetary authority’s tolerance range, and closely-watched core measures that exclude volatile items like energy and food are also easing. Still, central bankers are opting for a gradual cutting cycle as most analysts bet inflation will stick above the 3% target through 2026. Investor doubts surrounding President Luiz Inacio Lula da Silva’s pledges to eliminate the primary fiscal deficit — which excludes interest payments — are complicating the policymaking outlook.

What Bloomberg Economics Says:

“We expect the BCB to keep the current pace through the May meeting. From then on the BCB will likely proceed more cautiously, with 25-bps moves, as the ex-ante real rate nears the highest estimates for the neutral rate (4.1% to 5.5%, according to a BCB survey). Our forecast of 9% by December assumes that the government will remain ambiguous on fiscal targets, and that the names of the new BCB appointees won’t be known until 3Q24.”

—Adriana Dupita

Bank of Russia

* Current key rate: 16%
* Bloomberg Economics forecast for end of 2024: 12%

After the Bank of Russia more than doubled the key rate in 2023 to 16%, Governor Elvira Nabiullina signaled in December that the end of the tightening cycle may be approaching. Still, she warned that “until we are confident that there is a steady downward trend in price growth and inflation expectations, the key rate will stay high for as long as necessary.”

Policy makers are continuing to grapple with inflation that’s almost double the bank’s 4% target as President Vladimir Putin seeks a fifth term in March elections. Inflationary risks, including elevated budget spending on Russia’s war in Ukraine and a severe labor shortage, are poised to persist.

What Bloomberg Economics Says:

“The Bank of Russia’s key rate has peaked. Policymakers’ next job is avoiding premature easing. While most central banks face the same task in 2024, the Bank of Russia has fresh experience of what this mistake may cost. Its front-loaded easing in 2022 resulted in a ruble rout and drove price growth to triple its 4% inflation target in 2023. If it keeps the policy rate above 12% throughout 2024, inflation will come down to 4.7% year-on-year in December 2024.”

—Alexander Isakov

South African Reserve Bank

* Current repo average rate: 8.25%
* Bloomberg Economics forecast for end of 2024: 8%

Even though price growth eased toward the end of 2023, inflationary risks remain at the fore of officials’ concerns, rendering them reluctant to begin cutting borrowing costs. The South African Reserve Bank’s Monetary Policy Committee is seen keeping the key rate unchanged at its two meetings in the first quarter.

Governor Lesetja Kganyago says the central bank will continue to assess risks to the inflation outlook and stands ready to act should they materialize to ensure a return to the midpoint of its 3% to 6% target range, where it prefers to anchor expectations. One such danger could be increasing demands on public finances before elections this year that could weigh on the rand.

What Bloomberg Economics Says:

“The SARB’s unanimous decision to keep the repo rate at its November meeting confirms the hiking cycle has ended. This implies the upside pressure on inflation in the near term will be transitory. We expect inflation to moderately pick up from 5.4% in November and peak in January, and thereafter slow towards the mid-point of the 3-6% target. The central bank is likely to start cutting rates in 4Q when inflation approaches the 4.5% level where the SARB wants it to be anchored.”

—Yvonne Mhango