High inflation in the past years has led to strong interventions by central banks. Consequentially, interest rates were increased to levels last seen during the global financial crisis in 2007/08. Inflation has since declined substantially and has reached “manageable” levels. This development led to positive real rates in most economies and led to the question of when central banks would start to lower interest rates. This is especially the case, as interest rates remain at levels set in the summer of 2023 with no movement since then. In March 2024, the Swiss National Bank was the first central bank of the G7 currencies that lowered their interest rates. Interest rates in Switzerland declined from 1.75% to 1.5%. While this is a positive signal for the anticipated rate cuts throughout 2024, it needs to be stated that Switzerland was an exception over the past years. Most Western countries saw inflation rise close to 10% or above. In contrast, Switzerland’s inflation reached a height of only 3.4%. Most likely dates for rate cuts in the remaining economies are expected around June and July 2024 based on the current market sentiment. Inflation in the US, UK, and Eurozone remain relatively sticky around the 3% to 4% mark. It is likely that these central banks want to see a further declining trend in inflation ahead interest cuts. Figure 1 summarizes the development in interest rates and inflation from the beginning of January 2023 to March 2024.
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