Archive

ECB: Policy Well-Positioned Already

• The ECB’s 25bp cut took rates to a level that it considers well-positioned for the current outlook, thereby removing the presumption in favour of further easing.
• Lower headline inflation forecasts are already embedded in that judgement, with the temporary role of energy and FX recognised. Downside risks preserve some dovish bias.
• We still see this rate cut as the final one amid tight labour markets that preserve excessive underlying inflationary pressure. Market pricing should be less dovish.

By Philip Rush

Canada: Policy Rate Held At 2.75% (Consensus 2.75%) in Jun-25

• The Bank of Canada held its policy rate at 2.75%, as expected, but disappointed market participants who anticipated a dovish signal or rate cut, reflecting a cautious, data-dependent stance.
• Firmer-than-expected core inflation and persistent tariff-related cost pressures have offset the disinflationary effects of a softening domestic economy, prompting the Bank to be vague and non-committal about the potential for further rate cuts.
• The interest rate outlook remains highly uncertain, with future policy decisions hinging on the evolution of inflation, domestic demand, and the unpredictable trajectory of US trade policy.

Korea: 25bp Rate Cut To 2.5% (Consensus 2.5%) in May-25

• The Bank of Korea reduced its base rate by 25bp to 2.50%, as widely anticipated, in response to a marked deterioration in growth prospects and persistent domestic demand weakness.
• While inflation remains stable and near target, the MPC flagged rising household debt and FX volatility as key risks, indicating future rate decisions will carefully weigh financial stability against the need for further stimulus.
• The policy outlook remains dovish, but the pace and extent of additional easing will depend on incoming economic data, developments in global trade policy, and the evolution of financial market risks.

RBNZ: 25bp Rate Cut To 3.25% (Consensus 3.25%) in May-25

• The RBNZ reduced the Official Cash Rate by 25 basis points to 3.25%, in line with consensus expectations, citing subdued core inflation, spare economic capacity, and global headwinds.
• The decision, reached by a 5-1 majority, reflects internal debate over the pace of easing and a shift toward a more data-dependent policy approach, with no explicit guidance on further rate cuts.
• Evolving global trade tensions will influence future interest rate decisions, domestic inflation expectations, and the pace of economic recovery, with the OCR projected to reach 3.00% by year-end but subject to heightened uncertainty.