Global interest rate cuts are having difficulty getting started

Central banks’ wariness about joining the global interest rate cutting cycle can be reflected in four decisions to be taken in advanced economies this week.

Days after the Federal Reserve cut its forecast for monetary policy easing in the US this year, policymakers from Britain to Australia may signal they are still not so confident about deflation that they will start lowering borrowing costs themselves.

Such a result would confirm that June, originally seen as the inaugural event of a series of global interest rate cuts, may gradually become a display of widespread hesitation.

Although Canada was the first Group of Seven to take such a step on June 5, the European Central Bank’s cut in borrowing costs a day later, combined with higher inflation expectations, limited enthusiasm for further easing.

The Bank of England is expected to wait until at least August before cutting rates at its meeting on Thursday, due to the looming election and some price pressures.

Counterparts in Australia and Norway, which are meeting this week, are also in no rush to do so, while half of economists surveyed believe the Swiss National Bank may hold off on a second rate cut for now after taking the bold step of easing policy rates in March before its neighbours.

Decisions elsewhere could reflect different phases of global monetary cycles, with Brazil and Paraguay expected to hold borrowing costs steady and Chile expected to slow the pace of interest rate cuts.

What Bloomberg Economics says: “Major central banks are set to keep interest rates steady, with cuts more likely just a few weeks ago. The BOE is almost certain to leave policy unchanged in June ahead of the U.K. election. It’s a close call for the SNB.”

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

America and Canada

A week after several reports showing an easing of US inflation pressures, investors will have a chance to look at new data on consumer demand, the housing market and industrial production. Fed officials are also back to speaking publicly after planning just one rate cut for 2024.

Policymakers speaking this week include Thomas Barkin, Susan Collins, Lisa Cook, Mary Daly, Austan Goolsbee, Patrick Harker, Neel Kashkari, Adriana Kugler, Lori Logan, Alberto Mussallem, and John Williams.

Retail sales data released on Tuesday showed shoppers regained interest in May after purchases fell from a month earlier, reflecting a resilient consumer. Separate data showed the nation’s factories, mines and utilities increased output.

Housing construction data on Thursday showed construction work increased modestly in May from a month earlier, as builders remained cautious on inventory while adjusting to fluctuations in underlying demand.

The limited number of listings in the resale market, as well as the recent rise in mortgage rates, are hurting sales of existing homes. On Friday, the National Association of Realtors is projected to report another drop in sales of previously owned homes.

Looking north, the Bank of Canada will release a summary of its rate-cutting deliberations this month, providing more details about how policymakers arrived at their decision and the conditions for a rate cut at its next meeting on July 24.

Statistics Canada will publish population estimates for the first quarter, and retail sales data will also provide new information about the strength of the Canadian consumer.

Asia

The week in Asia begins with a flood of monthly data from China on Monday. These figures showed that growth in industrial production and retail sales slowed slightly in May compared with a year earlier, while growth in fixed asset investment held steady at 4.2% and the decline in property investment deepened slightly.

A day later, the Reserve Bank of Australia is expected to keep its cash rate target at 4.35%, with attention on how officials view the inflation trend after an unexpected surge in consumer price growth in April.

According to Bloomberg Economics, slowing inflation could delay a rate cut or lead to another rate hike.

Consumer inflation is expected to have risen to 2.6% in May, according to Japan’s key price index, prompting the Bank of Japan to raise interest rates as early as next month.

New Zealand’s economic growth returned to positive territory in the first quarter after two consecutive periods of slight contraction.

Japan trade data on Wednesday showed export growth in May accelerated to the fastest since November 2022.

Trade data from Singapore, Malaysia, South Korea and Indonesia were also released. The week ended with PMI data from Australia, Japan and India.

Meanwhile, Pakistan is trying to boost its chances of getting a new loan from the International Monetary Fund. Last week it increased taxes in its budget to raise revenue and on Sunday announced it would raise electricity prices by an average of 20%.

Europe, Middle East, Africa

In Britain, consumer-price numbers could capture investors’ attention on the eve of the BOE’s decision on Thursday. That report could show inflation reaching the 2% target for the first time in nearly three years.

But with the so-called core gauge expected to hover above 3% and the election campaign looming, economists expect policymakers to keep borrowing costs on hold. Their decision in August, which includes new forecasts, could provide a more opportune time to begin cutting rates.

The SNB’s decision is also due on Thursday. Economists are evenly divided on whether officials will lower borrowing costs for a second consecutive quarter. Keeping them on hold would cushion any spike in inflation and avoid a depreciation of the franc.

On the same day, Norway’s central bank is widely expected to keep its rate on hold at 4.5% for a fifth consecutive meeting. Investors may focus on how much improving economic activity and higher wage pressure will delay plans to reduce borrowing costs, with some suggesting no action will be taken until next year.

Turning east, Hungary is preparing to end its more than year-long monetary easing cycle, though a drop in the forint could reduce or eliminate room for the central bank to make one final cut to the EU’s highest key rate. That will happen on Tuesday.

In the euro zone, the latest set of purchasing managers’ indexes for June, released on Friday, will likely be the most important data, which could signal whether the region’s economic growth is picking up pace.

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

Another important event in the backdrop of last week’s market turmoil in France is the release of the European Commission’s decision on Wednesday, which will reprimand countries in the region for violating the 3% deficit limit.

The issue of financial turmoil is likely to come up at a meeting of euro-zone finance ministers in Luxembourg later this week.

Further down the region: In South Africa on Wednesday, inflation is forecast to hold steady at 5.2% in May. Neighbouring Namibia, meanwhile, is set to keep its rate at 7.75% amid accelerating consumer price growth and peg its currency to the rand.

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Chile’s central bank is expected to cut its key lending rate for the eighth consecutive meeting on Tuesday, although they may slow the pace of easing and reduce it by a quarter point to 5.75%.

Paraguay policymakers will also meet this week and could choose to keep their key rate unchanged at 6% for a third consecutive meeting after consumer prices rose from 4% in April to 4.4% in May.

In Mexico, much of the focus will be on the presidential transition from Andrés Manuel López Obrador to Claudia Sheinbaum and the potential policy implications, which has rattled investors.

The weakness seen in retail sales and GDP-proxy data in March is expected to continue in the April reports posted this week.

Colombia’s economy bounced less than expected in the first quarter, while month-on-month GDP-proxy prints were negative in February and March. April data due this week could show activity rebounding at the start of the second quarter.

In Brazil, the central bank may draw a line under its 325 basis-point easing cycle on Wednesday and maintain the benchmark Selic at 10.5% amid uncertain inflation expectations and concerns about rising government spending.

Analysts expect the key rate to rise to 10.25% by the end of 2024, which represents a 125 basis point increase in the forecast rate since March, while the swap market is now actually assessing tightening by the end of the year.