Bank of England, Federal Reserve and Bank of Japan to err on the side of caution this week

Chris Papadopoullos
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Federal Reserve chair Janet Yellen may have to wait until June to hike interest rates again (Source: Getty)

Three of the world’s major central banks are expected to take a cautious approach this week as they look to underpin economic growth amid rising global uncertainties.

The US Federal Reserve’s federal open market committee will decide on Wednesday whether to lift interest rates for the second time since the 2008-9 recession.

“Given market volatility since the start of the year and rising global uncertainties, there appears little chance of a second hike from the Fed at this meeting,” said economist Chris Hare from Investec, a specialist bank.

Yet the Federal Reserve will be looking to hike rates once risks subside. Vice chair Stanley Fischer said last week the US was seeing the “first stirrings” of rising inflation.

Read more: Fischer says increase in inflation is stirrin

“We suspect the Fed will be confident enough about the outlook to raise rates at its June meeting,” Hare said.

The Bank of England’s monetary policy committee is expected to vote unanimously to hold interest rates at a record low of 0.5 per cent on Thursday.

“With the UK economy seemingly stuttering so far in 2016 and domestic and global economic uncertainties high – any interest rate hike has disappeared off the table,” said economist Howard Archer from analysts IHS.

Read more: Ian McCafferty backtracks on interest rate hike vote

Economist Daiju Aoki from investment bank UBS said there is a strong chance the Bank of Japan will boost stimulus either on Tuesday or in April. He believes the central bank could raise its asset purchases to ¥ 100 trillion (£620bn) a year from ¥ 80 trillion.

“Driving this would be recent yen strength, declining corporate sentiment, and downward pressure on prices and inflation expectations,” he said. “In addition, we think that Japanese authorities will likely want to be seen to be active in averting a global recession ahead of hosting the G7 on 26-27 May.”

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