Major central banks reverse interest rate plans on market turmoil

NEW YORK: The world's most powerful central banks will be forced to tear up their plans following the carnage that has engulfed financial markets since the beginning of the year. Investors now believe there will not be a single interest rate rise from any of the G7 group of central banks this year, while the number of expected rate cuts this year has increased from zero to six. The data, compiled by Danske Bank analysts, suggests investors believe monetary policymakers could slash rates and pump up their quantitative easing programmes in a bid to stabilise the economic outlook.

Carefully laid battle plans to start tightening monetary policy have been left in tatters. At the beginning of the year the market was pricing in the possibility of two rate hikes by the US Federal Reserve in 2016. Now, after a turbulent week for global stock markets, investors believe there will be no moves at all this year. The big swing in expectations comes after world stock markets fell into "bear market" territory, as money managers fled from stocks to safe haven assets such as bonds and gold. "There's just so much gloom about everything at the moment," said Dario Perkins, an economist at Lombard Street Research.

Central banks have cut their rates 637 times since the collapse of Bear Stearns in March 2008. They have also purchased a combined $12.3?trillion (£8.5?trillion) of assets, according to Bank of America Merrill Lynch.

There were no expectations at the beginning of the year that the European Central Bank would cut interest rates. But now traders believe it will actually reduce its rates, which are already below zero, a further three times. Cuts are also expected from Japan and Canada.

Traders are wary, however, that Mario Draghi, the ECB president, could disappoint in the same fashion that he did last December, building up anticipation stimulus before an ECB policy meeting, and then failing to deliver. Mr Draghi "can't not deliver" at the ECB's next meeting, Mr Perkins said.