Central bank scanner: Déjà vu for central bankers

European Central Bank (ECB): 

• Recent action (June 11): The ECB raised the policy rate 25 basis points to a more restrictive stance. In May, headline inflation reached its highest level since September 2023. Policymakers’ growth forecasts were downgraded for both 2026 and 2027. Inflation forecasts were upgraded. 

• Upcoming (July 23): Opening the Strait of Hormuz could reduce the probability of another rate hike; however, the closure caught policymakers off guard. Financial markets priced in a rate hike by the ECB by year-end, after removing it when the strait first reopened.

Federal Reserve (Fed):

• Recent action (June 17): Chairman Kevin Warsh marked a clear shift from the previous Chairman Jay Powell’s Fed. Warsh shortened the post-meeting statement and announced five task forces to review how the Fed communicates and conducts policy. With limited forward guidance, it’s important that markets understand the Fed’s decision rules. Otherwise, expect more uncertainty and volatility. Warsh is keen on finding better measures for inflation. He has talked about the merits of using a trimmed mean, which eliminates the biggest inflation moves from the calculation. The forecasts released at the conclusion of the June meeting showed inflation was revised up, while unemployment was revised down. The former is moving in the wrong direction for the Fed. More participants penciled in rate hikes. Nine expect at least one rate hike by year-end; eight had no moves; one kept a rate cut in place. 

• Upcoming (July 29): Policymakers are increasingly leaning toward tightening policy. Warsh will need to be patient as he aims to reshape the institution. We expect two rate hikes by year-end due to sticky inflation apart from the conflict in the Middle East. 

Bank of Canada (BOC):

• Recent action (July 15): Limited pass-through to other categories from higher energy prices helped the BOC keep rates unchanged for its ninth straight meeting. The Canadian economy is picking up after a weak first quarter; a weak Canadian dollar is supporting exports at the risk of inflationary pressure. 

• Upcoming (September 2): Demand remains weak and is expected to be subdued until next year. The BOC will likely pause as price pressures remain manageable. The BOC noted that its policy rate is appropriate as the balance of risks is even between oil-related inflation and US-Canada trade stalling due to tariffs.

Central Bank of Brazil (BCB): 

• Recent action (June 17): The BCB cut rates by 25 basis points. That brought the Selic rate to 14.25%, 75 basis points lower than its cyclical peak. Energy inflation and inflation uncertainty have slowed the pace of cuts. BCB Governor Gabriel Galipolo said the post-meeting statement provided too much dense information in a limited space and created confusion around the decision; the bank did not provide guidance for the next meeting.

• Upcoming (August 4): The BCB is expected to cut rates by 25 basis points on better-than-expected inflation for June. The drop in energy prices coupled with the effects of higher rates earlier in the cycle should provide a cushion to cut. The BCB has been slow to cut rates, asserting its independence and credibility in combatting inflation.

Bank of Japan (BOJ): 

• Recent action (June 16): The BOJ raised the policy rate 25 basis points in a 7-1 vote. The lone dissent voiced more concern with risks to the labor market and manufacturing than about inflation worsening. Core inflation, which excludes fresh food but includes energy in the case of Japan, remains below the BOJ’s target. Fresh food prices increased at the fastest pace in over a year. 

• Upcoming (July 31): The BOJ has been deliberate in its pace of rate hikes. Debt levels and related interest expense are a concern; however, a weak yen increases the likelihood of further hikes. Monthly inflation, in May, tied for the second hottest increase since late 2024. Entrenched inflation is policymakers’ biggest fear. Two more incremental hikes are expected in 2027.

Reserve Bank of India (RBI): 

• Recent action (June 5): Policymakers held rates steady prior to the reopening of the Strait of Hormuz. To meet energy needs, Russia now supplies more coal to India than prior to the conflict. On the ground, households have faced rationing and shortages of a slew of products. Higher liquefied petroleum gas costs, key for domestic cooking, along with metals, plastics and rubber drove the rise in inflation.

• Upcoming (August 5): The RBI is expected to hike rates by 25 basis points. Inflation surged in June on pricier fresh food. That makes eight consecutive months of increasing inflation, on an annual basis. The rupee is still near its weakest level against the US dollar since 1992, when the RBI started publishing data. The RBI expects growth to remain solid, but at the slowest pace since the pandemic. Up to three rate hikes are possible over the next two years.

Bank of England (BOE):

• Recent action (June 18): The BOE opted to hold rates steady with a vote of 7-2. The two dissents were in favor of a rate hike. A softening labor market will offset some conflict-related price increases.

• Upcoming (July 30): First quarter growth accelerated to its fastest pace since the same time last year. Headline inflation cooled from 3.3% to 2.8% from March to May. The uncertainty surrounding the strait means non-energy prices are not out of the woods. Wages may adjust higher if price pressures persist. The BOE will message hawkish sentiment but opt for caution in future decisions. 

Bank of Mexico (Banxico): 

• Recent action (June 25): Banxico held rates steady. The central bank has slashed its policy rate 475 basis points since 2024. Mexico’s energy production blunted the worst effects of the conflict in the Middle East. 

• Upcoming (August 6): Weak demand puts Mexico on the precipice of a recession after a first quarter contraction. Inflation cooled faster than expected on a drop in fresh food prices, resulting in the lowest inflation rate since 2020. Policymakers will continue to hold rates steady, as they have previously signaled.

Reserve Bank of Australia (RBA): 

• Recent action (June 16): The RBA held rates steady in a 9–0 vote. The policy rate is up 75 basis points this year. Inflation was already accelerating ahead of the Iran conflict. Non-energy goods are being affected by the oil shock. 

• Upcoming (August 11): Sticky inflation with weak growth puts the RBA in a challenging position. The unemployment rate has reached the second highest level since the end of the pandemic. One additional rate hike is expected by year-end.

People’s Bank of China (PBOC): 

• Recent action (June 22): It has now been 13 months since the PBOC’s last rate adjustment. Energy prices triggered consumer and producer price acceleration over the last few months. Weak overall demand offset those price pressures. 

• Upcoming (July 20): China’s ability to draw on deep oil reserves makes it a swing buyer of crude as strait traffic waffles. First quarter growth was solid, but was countered by second quarter growth that was the weakest since 2022. The PBOC is expected to hold rates steady over the next few meetings. 

Central Bank of Turkey (CBRT):

• Recent action (June 11): The policy rate remained at 37% (down from a 50% peak at end-2024) for the fifth straight meeting. The CBRT can wait out the strait drama as rates are currently in restrictive territory. 

• Upcoming (July 23): The CBRT is forecast to continue cutting rates throughout the year with only the size of the cuts in question. Inflation expectations are falling faster than actual inflation. Policymakers took a more dovish tone while reiterating the goal of taming inflation.