Pace of tightening expected to slow down for major central banks: Moody’s Investors Service

Major central banks in the world are likely to slow their pace of tightening this year, due to a gloomy global outlook, says research and ratings firm Moody’s Investors Service.

It is likely for the United States Federal Reserve (Fed) to hike interest rates twice this year, instead of the three or four hikes previously projected, analysts at the ratings house said in a research note released on Friday.

The European Central Bank (ECB) will also slow down on their refinancing rates and on increasing their deposit facility, the note said.

The G3, which refers to the group of three of the world’s leading economic blocs the US, Japan, and European Union, are all ‘signalling a wait-and-see approach’ the analysts flagged.

‘The pace of economic expansion (is) slowing across major economies and the balance of risks (are) tilting to the downside,’ the analysts said.

Trade tensions, weak economic growth numbers in G3 countries

Uncertainties in the market include the US-China existing trade tensions and China’s economic slowdown, while the prolonged government shutdown in the US has created holes in the economic data, the note added.

Souring growth data coming from Europe in countries such as France, Germany and Italy are indicating a slower pace of tightening. Core inflation remains ‘well-below’ the European Central Bank’s target range, they said.

Meanwhile, the inflation outlook in Japan has worsened, and Moody’s does not expect a monetary policy tightening from the Bank of Japan for this year or next year. The Bank of Japan (BoJ) has been struggling to keep to its inflation target of 2% amid depressed wages and softening economic activity.