Archive

BoE Should Move Behind the Fed and ECB

• Hawkish surprises in the UK and US data pushed back rate cut pricing. Dovish comments from Bailey still weigh on BoE rates, inappropriately keeping pricing below the Fed.
• Underlying inflationary pressures are worse in the UK, where wage growth is persistently high and not backed by productivity, causing the UK’s services inflation to be higher.
• Prevailing policy settings don’t seem set to drive down UK inflationary pressures before the US. Unemployment is trending similarly, suggesting similar monetary tightness.

By Philip Rush

Monetary Authority of Singapore: Apr-24

• The Monetary Authority of Singapore (MAS) maintains the rate of appreciation of the S$NEER policy band to manage imported inflation and domestic economic pressures amid a nuanced global and local economic environment.
• Future policy decisions will be influenced by global economic conditions, domestic economic dynamics, and inflation trends, focusing on the anticipated easing of inflation by the end of 2024.
• MAS emphasizes its commitment to closely monitoring global and domestic developments, preparing to adjust policies as needed to ensure medium-term economic stability.

Korea Policy Rate 3.5% (consensus 3.5%) in Apr-24

• The Bank of Korea has maintained the Policy Rate at 3.5%, aligning with the economic consensus in response to ongoing global uncertainties, notably the varied monetary policies of major economies and geopolitical risks.
• Inflation dynamics influenced by volatile commodity prices alongside a slowing core inflation rate dictate a cautious monetary policy to stabilize mid-term inflation expectations.
• Financial stability remains a priority, with the central bank monitoring household debt and real estate market risks alongside global financial market fluctuations to guide future interest rate decisions amidst uncertain economic conditions.

ECB Loosely Tied to Cut in June

• The ECB maintained its policy rates and did not pre-commit to a June cut. However, a few members wanted to cut now, and the statement added explicit conditionality.
• Guidance now ties the ECB to a June cut, albeit with ongoing data dependence preserving wriggle room. Sticky services inflation and Fed rates won’t stay its hand.
• Resilient data are rolling back Fed views to our September call, but we now doubt the ECB will want to delay past June. The BoE would probably only then wait until Nov-24.

By Philip Rush