As global central banks consider rate cuts, inflation concerns loom

By Craig Stirling

Central banks hesitant to participate in the global cycle of interest rate cuts could be revealed this week with a quartet of decisions in advanced economies.

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Days after the Federal Reserve downgraded its forecast for monetary easing in the United States this year, policymakers from the United Kingdom to Australia are expected to signal that they are still not sufficiently convinced of disinflation to start reducing borrowing costs themselves.

Such results would confirm that June, initially planned as a month-long opening ceremony to a series of global rate cuts, could increasingly turn out to be a widespread manifestation of hesitation.

Although Canada actually made the Group of Seven’s first decision on June 5, the European Central Bank’s reduction in borrowing costs a day later, accompanied by a higher inflation forecast, showed enthusiasm limited for further relaxation.

At the Bank of England on Thursday, the approach of an election and some persistent price pressures argue in favor of waiting at least until August before cutting rates.

Its peers in Australia and Norway, who are also meeting this week, are also in no rush to do so, while half of economists surveyed believe the Swiss National Bank could avoid a second cut for now after its decision bold easing in March before its neighbors.

Decisions elsewhere could highlight the different stages of global monetary cycles, with Brazil and Paraguay expected to keep their borrowing costs unchanged, and Chile expected to slow its rate cuts.

What Bloomberg Economics says:

“Major central banks appear ready to keep interest rates unchanged, whereas they seemed more likely to cut them just a few weeks ago. The BoE is almost certain to keep its policy unchanged in June, in the run-up to the UK elections. The SNB is getting closer.”

—For a full analysis, click here

Elsewhere, US retail sales, a raft of Chinese data and inflation figures from the UK and Japan will be among the highlights for investors this week.

Click here to find out what happened last week and below you’ll find our summary of what’s happening in the global economy.

United States and Canada

A week after a series of reports showed a moderation in inflationary pressures in the United States, investors will have access to new figures on consumer demand, the housing market and industrial production. Fed officials are also returning to the public speaking circuit after planning just one rate cut for 2024.

Policymakers who spoke this week included Thomas Barkin, Susan Collins, Lisa Cook, Mary Daly, Austan Goolsbee, Patrick Harker, Neel Kashkari, Adriana Kugler, Lorie Logan, Alberto Musalem and John Williams.

Retail sales figures released Tuesday are expected to show shoppers reengaged somewhat in May after retreating a month earlier, underscoring consumer resilience. Separate data shows increased production at the country’s factories, mines and utilities.

Housing starts data on Thursday could show a slight increase in construction in May from the previous month, as builders adjust to fluctuations in underlying demand while remaining diligent on inventory.

The limited number of listings in the resale market, combined with the recent rise in mortgage rates, is weighing heavily on existing home sales. The National Association of Realtors is expected to report another decline in used home sales on Friday.

Looking north, the Bank of Canada will release a summary of the deliberations that led it to cut rates this month, providing additional insight into how policymakers reached the decision and the terms of a rate cut at their next meeting on July 24.

Statistics Canada will release population estimates for the first quarter, and retail sales data will also offer new insight into the strength of the Canadian consumer.

Asia

The week in Asia kicks off with the monthly deluge of Chinese data on Monday. The figures likely show that gains in industrial production and retail sales in May were slightly below the pace at the start of the year, while the increase in investment in fixed assets remained steady at 4.2 percent and the decline in real estate investments was slightly accentuated.

A day later, the Reserve Bank of Australia is expected to maintain its policy rate target at 4.35 percent, with focus on how authorities view the path of inflation after the unexpected recovery in growth in consumer prices in April.

The slowing pace of disinflation could potentially delay the decision to cut rates or trigger a further hike, according to Bloomberg Economics.

Japan’s key price gauge is expected to show consumer inflation accelerated to 2.6 percent in May, keeping the Bank of Japan on track for a rate hike as early as next month .

New Zealand’s economic growth may have returned to positive territory in the first quarter after two consecutive periods of modest contractions.

Japanese trade data released on Wednesday may show export growth accelerated in May to its fastest level since November 2022.

Singapore, Malaysia, South Korea and Indonesia also obtain trade statistics. The week ends with an explosion in PMI figures for Australia, Japan and India.

Europe, Middle East, Africa

In the UK, consumer price figures ahead of Thursday’s Bank of England decision could attract investors’ attention. The report could show inflation hitting the 2 percent target for the first time in almost three years.

But with the underlying core indicator likely to rise above 3 percent and an election campaign underway, economists predict policymakers will keep borrowing costs unchanged. Their upcoming decision in August, accompanied by new forecasts, could provide a more opportune time to start cutting rates.

The SNB’s decision will also take place on Thursday. Economists are also divided on whether or not authorities will cut borrowing costs in their second consecutive quarterly reduction. Keeping them in abeyance would help guard against any acceleration of inflation and avoid a depreciation of the franc.

On the same day, the Norwegian central bank is expected to keep its key rate at 4.5 percent for the fifth consecutive meeting. Investors may focus on the extent to which improving economic activity and increased pressure on wages will delay plans to reduce borrowing costs, with some suggesting doing nothing until next year.

To the east, Hungary is preparing to end its more than year-long cycle of monetary easing, although the decline in the forint could reduce or eliminate the central bank’s room to lower a last time the highest policy rate in the European Union. It’s Tuesday.

In the euro zone, the highlight of the data is likely to be the latest set of purchasing managers’ indices for June, released on Friday, which could indicate whether or not the region’s economic recovery is gaining momentum.

ECB officials expected to speak include President Christine Lagarde and chief economist Philip Lane on Monday, and Vice President Luis de Guindos on Tuesday.

Another key event, amid the market turmoil that hit France last week, will be the publication on Wednesday of the European Commission’s verdict reprimanding countries in the region for exceeding the 3 percent deficit limit.

Financial turmoil is likely to be a topic at the eurozone finance ministers’ meeting in Luxembourg later this week.

Further in the region: In South Africa on Wednesday, inflation is expected to remain stable at 5.2 percent in May. Meanwhile, neighboring Namibia is expected to maintain its rate at 7.75 percent amid accelerated consumer price growth and preserve its currency’s peg to the rand.

Latin America

Chile’s central bank will likely cut its benchmark rate for an eighth straight meeting on Tuesday, although it could slow the pace of easing and propose a quarter-point cut to 5.75 percent.

Paraguay’s policymakers are also meeting this week and may choose to keep their benchmark rate unchanged at 6 percent for a third straight meeting after consumer prices accelerated to 4.4 percent in May from 4 percent. in April.

In Mexico, much of the focus will be on the presidential transition from Andres Manuel Lopez Obrador to Claudia Sheinbaum and the potential political implications that have rattled investors.

The weakness seen in March’s retail sales and GDP proxy data can be expected to carry over into the April reports released this week.

Colombia’s economy rebounded less than expected in the first quarter, while posting negative monthly GDP figures in February and March. April data due this week could show a rebound in activity at the start of the second quarter.

In Brazil, the central bank may end its 325 basis point easing cycle on Wednesday and keep the benchmark Selic index at 10.5 percent, amid unanchored inflation expectations and growing concerns about public spending.
Analysts now forecast a policy rate of 10.25% by the end of 2024, representing a 125 basis point increase in rate forecasts since March, while the swaps market is now pricing in a tightening towards the end of the year.