Archive

ECB: Cutting In Shadow of Shocks

• The ECB’s seventh 25bp deposit rate cut to 2.25% risks becoming stimulative, but the shock from US trade policy seen through market moves demanded a response.
• Central bankers are no more aware of the trade policy outlook than markets, but they are more aware of the potential inflationary effects and limits to effective easing.
• Time will reveal the tariffs and impact, allowing the agile ECB to tackle this rather than just the shadow it has cast on anticipatory market pricing. We still expect a June cut.

By Philip Rush

Korea: Policy Rate Held At 2.75% (Consensus 2.75%) in Apr-25

• The Bank of Korea maintained its base rate at 2.75%, aligning with the majority consensus, as heightened uncertainty over US tariff policy, domestic stimulus measures, and exchange rate volatility warranted a pause in easing, despite deteriorating growth prospects.
• Domestic GDP is now expected to undershoot the 1.5% forecast from February due to weak Q1 performance, persistent trade frictions, and subdued domestic demand, while inflation remains stable at around 2%.
• Further rate cuts remain likely, but the MPC will assess external volatility and policy clarity before resuming easing, with the May outlook expected to be a key inflexion point.

UK: Price War Dents Spring Inflation

• A supermarket price war hit food prices, slowing UK CPI inflation below the headline consensus again. Upside news in clothing was offset by downside in game prices.
• Repeating 2008’s experience would drive a game price rebound, but the food effect is more likely to persist. The median inflationary impulse should also rebound soon.
• Unit wage costs remain inconsistent with the target, while energy and water utility bills will drive a massive jump in April. We still forecast a final 25bp BoE rate cut in May.

By Philip Rush

EA Disinflation Confirmed For ECB Doves

• An unrevised final HICP print confirmed the disinflationary space driving the ECB to cut again in April, despite growing desire to slow easing before it becomes stimulative.
• The median inflation impulse remains at, or slightly below, the target. However, other statistical measures are stickier and labour costs are fundamentally growing too fast.
• EURUSD appreciation compounds disinflationary energy price pressures to trigger another likely slowing in April that might dovishly surprise the consensus again.

By Philip Rush