Week of 3/31: The Fed Outlook, Zimbabwe’s new gold-backed currency, and Kazakhstan’s Quest to Easing

Welcome to "Worldview: Central Bank Insights" – your shortcut to understanding recent trends in global finance.

In this fifteenth episode, we delve into the latest reports regarding when the Fed will finally cut rates, Zimbabwe’s introduction of a new, gold-backed currency in order to replace their dollar, and Russia's inflation preventing Kazakhstan easing.

Contact: 

Email: rabossong2@gmail.com

Transcript

Hello and welcome to the fifteenth episode of "Worldview: Central Bank Insights”. I am your host, Reagan Bossong, a freshman at the Wharton School of Finance, and it is my pleasure to guide you through another exploration of the largest stories regarding global financial dynamics over the past week. We will begin with an overview of general news from the US Fed, and then delve into a few stories about other central banks around the world. In today's discourse, we will begin by discussing when the Fed will finally cut rates, Zimbabwe’s introduction of a new, gold-backed currency in order to replace their dollar, and Russia's inflation preventing Kazakhstan easing. 

So first, in regards to the Fed, Minneapolis President Neel Kashkari suggested in an interview that the Federal Reserve may not cut interest rates at all in 2024, contrary to Wall Street's expectations of multiple rate reductions. Kashkari mentioned that if inflation remains stable and key economic indicators such as job growth, consumer spending, and GDP growth remain strong, there might not be a need for rate cuts. He had previously predicted two rate cuts but now questions their necessity. Kashkari's comments contrast with Fed Chair Jerome Powell's statement that the central bank is likely to lower its benchmark rate later in the year. Powell's remarks were aimed at providing relief to consumers and businesses facing higher borrowing costs after 11 rate hikes in two years. However, inflation has remained above 3% and even accelerated in February, leading Powell to caution against cutting rates too quickly. The possibility of no rate cuts in 2024, as suggested by Kashkari, had a significant impact on the stock market, with the S&P 500 and the Dow Jones Industrial Average both declining after his interview. Investors are now closely watching economic reports, particularly the March jobs report and inflation data for March, to gauge the Fed's future actions. Economists are divided, with some forecasting a rate cut in June, which would be the first since March 2020, while others believe that further rate hikes are still on the table.

Zimbabwe is launching a new currency called Zimbabwe Gold (ZiG), which will be backed by gold and foreign currencies. This move aims to replace the collapsing local currency, which has faced significant devaluation and hyperinflation. The new currency will circulate alongside foreign currencies and is intended to bring stability to the economy and help reduce inflation. The Zimbabwean dollar was reintroduced in 2019 after a period of dollarization, but it failed to gain public trust, leading to the majority of transactions being conducted in foreign currencies. The recent sharp decline in the value of the Zimbabwean dollar, coupled with high inflation rates, prompted the need for a new approach. The Reserve Bank of Zimbabwe announced that the new currency's exchange rate will be determined by the interbank exchange rate and the London PM Fix price of gold. Additionally, the central bank is recalibrating its main interest rate, setting it at 20%, a drastic cut from the previous rate of 130%. Banks are required to convert their current Zimbabwean dollar balances into ZiG immediately, while the public has 21 days to exchange their old notes and coins for the new currency. These measures are expected to have an impact on inflation, according to central bank governor John Mushayavanhu. The launch of ZiG follows months of discussions between the central bank and the finance ministry on currency reforms, marking a significant step in Zimbabwe's efforts to stabilize its currency and economy.

Kazakhstan's central bank is closely monitoring both domestic and Russian inflation as it considers when to resume cutting its benchmark interest rate. The country's largest trading partner in 2022 was Russia, accounting for a significant portion of its foreign trade and imports. However, China has since overtaken Russia as Kazakhstan's top trading partner, and the share of Russian imports has declined. In February, Kazakhstan's central bank lowered its benchmark rate for the fifth consecutive meeting, signaling a pause in its easing cycle. The rate currently stands at 14.75%, among the highest in developing markets. Despite a slowdown in inflation to its slowest pace in two years at 9.1%, inflation remains far above the bank's target of around 5%. The central bank is particularly focused on monthly inflation, which rose 1.1% in February, the fastest since February 2022. This increase was a major factor in pausing rate cuts until more data can be gathered. The bank is also monitoring the country's trade balance, foreign currency market, and planned government spending, which will be crucial for policymakers. Russia's central bank has indicated it will maintain its high interest rates for a prolonged period, with annual price growth hovering over 7%, almost twice its 4% target. This has implications for Kazakhstan's economy, given the interconnectedness of the two economies and the dependence of certain industries on Russian imports. Kazakhstan is facing economic challenges, including declining revenue and budget cutbacks, exacerbated by delays in key projects. The government aims to boost growth while reducing spending and reallocating funds for investment. However, tax breaks for new projects are a concern, and a review of the tax system may be necessary. Overall, Kazakhstan's central bank is closely monitoring inflation, trade dynamics, and external factors, including developments in Russia, to guide its monetary policy decisions and support the country's economic stability and growth.

So yeah, in conclusion, we began by discussing Minneapolis Fed President Neel Kashari’s latest opinion on Fed rate cuts, Zimbabwe’s introduction of a new, gold-backed currency in order to replace their dollar, and Russia's inflation preventing Kazakhstan easing. As we continue to live throughout this financial landscape, the ripples of change will definitely continue being felt across economies worldwide. That’s a wrap for this week's central bank roundup. If you have topics you want me to dive into or thoughts on today's podcast, let me know anytime. You'll find all my contact details in the show notes. Until next time. Thank you!