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The Only Way Is Down for Central Bankers Already at Peak Rates By Bloomberg

© Reuters.  The Only Way Is Down for Central Bankers Already at Peak Rates


The Only Way Is Down for Central Bankers Already at Peak Rates By Bloomberg


© Reuters. The Only Way Is Down for Central Bankers Already at Peak Rates

(Bloomberg) — The Federal Reserve and other leading central banks are declaring the peak in global interest rates has been reached and are readying to start the march down.

As the world economy weakens amid the U.S.-China trade war and inflation continues to undershoot the target of most policymakers, Fed Chairman Jerome Powell is set to oversee the first cut to the in a decade.

European Central Bank President Mario Draghi has also flagged action, though he may wait until September, and even Bank of Japan Governor Haruhiko Kuroda may come under pressure to join in. The People’s Bank of China has eased lending conditions but so far held fire on rates, but Australia, India, New Zealand and Russia are among those to have already injected fresh stimulus into their economies.The action marks a turnaround from the end of last year when investors were bracing for tighter monetary policy the world over, led by the Fed.

What Bloomberg’s Economists Say: “Major central banks face different pressures. For the Fed, economic fundamentals appear robust, it’s the fear of what’s to come that’s prompting action. For Europe, growth below potential demands a response, but space to provide it is limited. In China, tariff-dented growth calls for cuts; high leverage counsels caution. In all cases, though, the result will likely be additional stimulus in the months ahead.” — Tom Orlik

Here is Bloomberg Economics’ quarterly review of 23 of the top central banks, which together set policy for almost 90% of the global economy. We outline the issues they face in 2019 and how they might respond.

U.S. Federal Reserve

  • Current federal funds rate (upper bound): 2.5%
  • Forecast for end of 2019: 2%

Fed Chairman Powell has clearly signaled an interest rate cut is coming at the central bank’s meeting later this month and the question is whether he’ll advocate for a half-point reduction or stick with a more cautious quarter-point move. The Fed chief, under fire from President Donald Trump for raising rates last year, has highlighted uncertainties over Trump’s trade policies and weakening global manufacturing output. These could undermine the record U.S. expansion by sapping business investment, which has weakened despite low unemployment and solid consumer spending.

Powell has assured Americans that the central bank is committed to keeping the economy on track. With inflation running below the Fed’s 2% target, officials have scope to ease, though some may worry at fanning investor appetite for risk amid hefty corporate borrowing and with U.S. stocks around record highs. Powell in the past has cautioned that the last two U.S. recessions were caused by asset bubbles: the housing market collapse in 2008 and the end of the boom in 2000.

What Bloomberg’s Economists Say: “As he testified before Congress, Fed Chair Powell chose not to reshape market expectations which were leaning heavily toward a July cut of 25 bps, further illustrating that the Fed is not willing to fight market sentiment following the clumsy execution of its final rate hike in the fourth quarter of last year. Bloomberg Economics anticipates 50 bps of cuts this year. Following a 25 basis point cut at the July meeting, we expect policy makers to attempt to string market expectations of the second move through to December, depending on the tone of incoming data.” — Carl Riccadonna & Yelena Shulyatyeva

European Central Bank

  • Current : -0.4%
  • Forecast for end of 2019: -0.5%

ECB policy makers acknowledge that lingering global uncertainties may deepen the euro area’s slowdown, and are readying for additional action such as interest rate cuts or renewed asset purchases. Investors and economists expect the deposit rate to be reduced by September, and many see quantitative easing being relaunched before the year is out.

Draghi is poised to leave office in October as the only ECB president to never have raised interest rates. His successor, IMF Managing Director Christine Lagarde, is widely seen as continuing his accommodative stance. She’s scheduled to begin her new role on Nov. 1, the same day the U.K. plans to start life outside the European Union, and faces an immediate economic shock if Britain fails to strike a Brexit deal.

What Bloomberg’s Economists Say: “Sentiment has soured, inflation is stubbornly weak and Europe may become the next major casualty of protectionism. The ECB has already indicated stimulus is coming and we expect the full monty — a rate cut, relief for banks and relaunch of QE at 45bn euros a month. For maximum impact, this should come as a package, alongside fresh forecasts in September. The risk is that action on rates comes sooner.” — Jamie Murray

Bank of Japan

  • Current balance: -0.1%
  • Forecast for end of 2019: -0.1%

The BOJ is likely to keep its policy settings unchanged for now. Governor Kuroda told Bloomberg in June that the central bank can still deliver big stimulus, but said no action was warranted. Economic growth data for Japan has proven stronger than expected, giving policy makers more confidence in the resilience of domestic demand, and effectively putting to bed talk of postponing a sales tax increase in October. Prime Minister Shinzo Abe’s government also seems less concerned about the BOJ’s inflation goal these days, putting less pressure on Kuroda to act. Abe told lawmakers ahead of a July upper house election that his real economic goal was achieving full employment, not 2% price growth.Still, a majority of economists polled by Bloomberg expect the bank’s next policy step will be extra easing at some point. Many of them flag a sharp gain in the yen, prompted by likely U.S. rate cuts.

The BOJ’s current pledge is to keep interest rates extremely low until around spring next year as it assesses the impact of the tax hike on the economy. As the tax increase approaches, the BOJ may want to reaffirm its easing commitment by extending its guidance without referencing the tax.

What Bloomberg’s Economists Say: “The BOJ is unlikely to budge for the foreseeable future regardless of inflation slowing and external pressures increasing. Even so, part of its strategy may be to give the 10-year yield a little more wiggle room and a tweak of its forward guidance. The yen will be important in the calculus going forward — appreciation toward 100 per dollar would probably put the BOJ on guard.” — Yuki Masujima

Bank of England

  • Current 0.75%
  • Forecast for end of 2019: 0.75%

Governor Mark Carney has noted the darkening outlook over the U.K. since global trade tensions flared up. The extension of the Brexit deadline also prolonged the uncertainty that’s holding back companies’ investments. After stockpiling boosted growth in the first quarter, the economy probably stagnated or even contracted in the second.

All that has led to a widening gap between the BOE’s forecasts for gradual rate hikes, which assume a smooth Brexit, and the market’s view that rate cuts are next on the agenda.

The search for Carney’s successor, who will take over in February, is also clouded by the change in government, which means that current Chancellor of the Exchequer Philip Hammond probably won’t still be in the job when it’s time to make the appointment. And if the departure from the European Union goes badly in October, Carney will certainly have his hands full until he leaves.

What Bloomberg’s Economists Say: “The combination of uncertainty about Brexit and a slowdown in global growth has put the brakes on the U.K. economy this year. Looking to the second half, there are few signs of those headwinds abating. We expect quarterly growth to stay below trend and average 0.3% in 2H while CPI inflation is likely to remain below target over the same period. That gives the BOE room to keep rates on hold while it waits to see the how the new prime minister moves forward with Brexit. With the clock ticking, reaching a deal by October 31 looks increasingly ambitious. At the same time, Parliament appears ready to stop a no-deal exit. That leaves the prospect of another Brexit delay and more policy paralysis.” — Dan Hanson

Bank of Canada

  • Current : 1.75%
  • Forecast for end of 2019: 1.75%

Governor Stephen Poloz reinforced the view he’s on hold indefinitely after he kept the Bank of Canada’s overnight rate at 1.75% for a sixth straight meeting in July and gave little indication he’s prepared to follow the global move toward easier policy.Canada’s economic resurgence in the second quarter buys Poloz time to gauge whether U.S.-China trade tensions resolve themselves or deepen. So does the recent stabilization in the country’s housing market. While most observers agree the central bank will be on hold until through 2020, some economists question how the country can withstand a deceleration in the U.S., its largest trading partner. Markets are also leaning in that direction, pricing in about 15 basis points of cuts over the next year.

People’s Bank of China

  • Current 1-year best lending rate: 4.35%
  • Current 7-day reverse repo rate: 2.55%
  • Forecast for end of 2019: 4.35%; 2.48%

Markets are raising their bets the PBOC will need to take bigger easing steps to revive tepid growth. Economists expect the bank to provide long-term cheap liquidity by reducing reserve-requirement ratios for commercial lenders, and forecasts of a cut in open-market borrowing costs are growing.

Consumer inflation is now close to the policy target of 3% and will probably stay there for a few more months, but that won’t likely be a key constraint for monetary policy as core inflation remains low. Factory-gate prices, arguably a more important inflation gauge, will flirt with deflation throughout the year. The trade truce reached by China and the U.S. at the G-20 meeting in Osaka eased the pressure on the yuan. The jobless rate has fallen a little but policy makers are still closely watching the situation. The country is expected to keep the full-year current account in a small surplus if oil prices stay muted.

What Bloomberg’s Economists Say: “China’s top policy makers showed some indications of looking beyond the current downturn to tackling long-term structural reforms. The weakening economic outlook will probably force them to re-focus on stabilizing cyclical growth and step up policy support – on both the fiscal and monetary fronts. The government is likely to buttress the economy with further infrastructure spending. The PBOC will probably step up stimulus. If the higher U.S. tariffs remain in place for an extended period, the PBOC could cut the RRR by another 150 basis points and reduce the benchmark interest rate by 50 bps by year-end, with one 25-bps cut in 3Q and another in 4Q.” — David Qu

Reserve Bank of India

  • Current repo rate: 5.75%
  • Forecast for end of 2019: 5.5%

The RBI has been the most aggressive rate cutter of any major central bank this year, lowering borrowing costs by 75 basis points to take the benchmark rate to a nine-year low. Inflation remains below the central bank’s medium-term target of 4%. And with a budget from new Finance Minister Nirmala Sitharaman that has shown commitment to fiscal prudence, Governor Shaktikanta Das might have room to lower rates even more in coming months to support economic growth that has slumped to a five-year low.

What Bloomberg’s Economists Say: “We expect the RBI to continue with its policy easing – likely with a 25 bps rate cut at the August 7 meeting and a total of 50 bps by March 2020. The RBI is now also keeping the banking system flush with liquidity, in line with its accommodative stance. Surplus liquidity conditions bode well for the transmission of its policy rate cuts into lower borrowing costs in the economy. This should help drive a V-shaped recovery in growth in the current quarter.” — Abhishek Gupta

Central Bank of Brazil

  • Current Selic target rate: 6.5%
  • Forecast for end of 2019: 5.5%

New central bank chief Roberto Campos Neto is in a comfortable position, with inflation expectations anchored through 2021 and the benchmark interest rate at an all-time low. With consumer prices rising well below target this year and the economy either in or close to technical recession, analysts expect policy makers to lower borrowing costs by a full percentage point by December.

Yet the bank has made clear that “concrete advances” in the government’s reform agenda, particularly an overhaul of the nation’s bloated pension system, are a precondition for monetary easing. While the proposal won’t become law before at least September, investors bet interest rates may start to fall earlier than that as the bill overcomes major congressional hurdles along the way. Also, investors aren’t pricing in any tightening before end-2020.

What Bloomberg’s Economists Say: “Monetary policy has been accommodative for the last two years at least, but momentum has been building for further easing in Brazil. Inflation is slowing and growth has been disappointing; markets’ and BCB’s own forecasts point to below-target inflation in 2020; and prospects of low rates elsewhere diminished risks to the currency. The last thing standing between BCB and a rate cut seems to be pension reform: BCB has repeatedly referred to “fiscal uncertainties” as an important risk for inflation. We expect an easing cycle totalling 100bps, bringing the Selic to 5.5% before year-end — conditional on the lower house approving the pension overhaul.” — Adriana Dupita

Bank of Russia

  • Current key rate: 7.75%
  • Forecast for end of 2019: 7.15%

After taming an inflation spike earlier in the year, the Bank of Russia returned to monetary easing in June, with a 25 basis-point cut and a hint at two more before the end of the year. But with inflation falling faster than expected and the already-sputtering economy hitting an air pocket, the central bank is under pressure to move faster to reduce the cost of credit, now among the highest in the world in real terms.

Governor Elvira Nabiullina has even hinted that the central bank could opt for a bigger half-percentage point cut next time, which would take interest rates to the lowest level in more than five years.

Building the case for more cuts is a world-topping 10.5% rally in the ruble this year, which has helped the outlook for inflation. Monthly inflation was flat for the first time in almost a year in June. Also, fears of harsher U.S. sanctions have eased after attention in Washington shifted to the trade war with China in the wake of Special Counsel Robert Mueller’s report on alleged Russian meddling in the 2016 election.

What Bloomberg’s Economists Say: “The Bank of Russia’s easing cycle will keep turning, with a full percentage point of rate cuts likely by mid-2020. Policy settings remain relatively tight, while inflation has underwhelmed. Demand shows signs of lingering weakness. We expect the central bank to front-load easing with another quarter-point reduction in July. One more cut might come in 4Q, taking the key rate to 7% at year-end.” — Scott Johnson

South African Reserve Bank

  • Current repo average rate: 6.75%
  • Forecast for end of 2019: 6.5%

Moderating inflation and persistently slow economic growth could open the door for the South African Reserve Bank to cut its benchmark interest rate by 25 basis points for the first time in over a year this month. While Governor Lesetja Kganyago said last month the central bank’s forecasting model suggests there may be room for rate cuts in the next year or two, inflation expectations are at a record low. That, and the rand’s gains to the strongest level against the dollar in four months, could bring easing forward.

Changes to the composition of the MPC could also play a role. Two of the five members voted for a rate cute in May and since then Chris Loewald from the central bank’s research department was appointed to the panel and Deputy Governor Daniel Mminele, who was seen as hawkish, left the Reserve Bank.

What Bloomberg’s Economists Say: “We expect the South African Reserve Bank to follow the winds of monetary policy change and ease its stance in 2H19. The reappointment of Lesetja Kganyago for another five-year term as governor makes for some continuity. But the loss of his key lieutenants Francois Groepe and Daniel Mminele has significantly reduced his ability to focus monetary policy on bringing inflation expectations closer to the mid-point of SARB’s 3-6% target range.” — Mark Bohlund

Banco de Mexico

  • Current overnight rate: 8.25%
  • Forecast for end of 2019: 8.25%

Economists across the board agree that Mexico’s central bank is finished with raising interest rates as both inflation and the economy slow. That focus now is on when policy makers led by Governor Alejandro Diaz de Leon will begin to loosen.

Inflation is hovering near the 4% upper limit of policy makers, but most economists surveyed by Bloomberg expect the bank to wait until early next year to lower borrowing costs. The board was divided in its decision to keep the key interest rate at a decade high in its June decision, with one board member voting for a quarter-point cut as the economy sputters. Still, members highlighted inflation risks from potential weakness in the peso based on the possible imposition of tariffs by the U.S., as well as the risk for an increase in energy or agricultural prices.

What Bloomberg’s Economists Say: “Banxico is likely to cut interest rates in line with the Federal Reserve to avoid relative tighter monetary conditions. Headline and core inflation are in line with central bank forecasts and show no need for tighter policy. Weak economic growth consistent with a negative and widening output gap argue against any additional tightening. Lingering economic risks and high uncertainty still grant caution and limit room for policy makers to ease monetary conditions.” — Felipe Hernandez

Bank Indonesia

  • Current 7-day reverse repo rate: 6%
  • Forecast for end of 2019: 5.75%

After being one of the most aggressive rate hikers in Asia last year with 175 basis points of tightening, Bank Indonesia Governor Perry Warjiyo has flagged easing is now only a matter of timing, and magnitude. Policy makers have become increasingly concerned about spillover effects from trade tensions and waning global demand, with the government having lowered its forecast for growth for this year and next year.At the same time, the trade war between the U.S. and China is seen as presenting an opportunity as Indonesia looks to lure investment and boost exports, in a bid to help rein in a persistent current account deficit. Inflation at 3.28% in June remains low by Indonesian standards and well within the central bank’s 2%-4% target range, providing additional room for the first rate cut since September 2017.

What Bloomberg’s Economists Say: “Bank Indonesia may be able to add rate cuts to its policy mix in 2H in support of growth. Ongoing rupiah vulnerability has forced the central bank to use alternative tools to support lending. Hurdles for the currency are the current account deficit (which is poised to re-widen from 1Q) and risk aversion (which has been buoyed by the escalation in May of the U.S.-China trade war). Should the Fed cut interest rates, though, Bank Indonesia would have more room to maneuver. We’d expect easing by the Fed to be at least partially mirrored by Indonesia’s central bank. This would maintain Indonesia’s interest rate differential, supporting capital inflows and the rupiah.” — Tamara Henderson

Central Bank of Turkey

  • Current 1-week repo rate: 24%
  • Forecast for end of 2019: 22%

The monetary policy outlook may turn more dovish in Turkey after President Recep Tayyip Erdogan unexpectedly dismissed Murat Cetinkaya as governor for not lowering interest rates, appointing deputy Murat Uysal as his replacement.

The decision came days after Turkey’s real rate soared to a world topping 8.3% as inflation slowed more than expected, giving policy makers room to start an easing cycle as early as July. Uysal takes charge of monetary policy following a pause in interest rates that lasted for over nine months. Some economists worry that the central bank may kick off an easing cycle stronger than warranted by the inflation outlook at the next policy decision scheduled for July 25.

What Bloomberg’s Economists Say: “The sacking of Murat Cetinkaya as governor of the central bank leaves no one in doubt: President Recep Tayyip Erdogan wants lower interest rates, and he wants them now. The new governor Murat Uysal has his orders, but will have to weigh them against the risks posed by currency volatility as markets are likely to penalize excessive easing. We expect at least 400 basis points of rate cuts this year.” — Ziad Daoud

Central Bank of Nigeria

  • Current central bank rate: 13.5%
  • Forecast for end of 2019: 13%

Nigeria’s central bank has made it very clear that it’s keen to boost lending to help an economy that’s still struggling to recover from a 2016 contraction.

Governor Godwin Emefiele surprised with the first interest-rate cut in more than three years in March, but with inflation that’s been above the target band of 6% to 9% for since 2015 and the need to attract foreign inflows to support the naira, the central bank has started to resort to other measures than interest cuts. It has increased the ratio of deposits that commercial banks must use for loans and reduced the amount of money lenders can keep in interest-bearing accounts at the central bank.

The central bank may sit back now and first monitor the effect of these new regulations on credit extension, while it waits for signs that inflation pressures are easing, before it cuts further.

What Bloomberg’s Economists Say: “Governor Godwin Emefiele appears to have built a consensus on the reconfigured monetary policy committee of the Central Bank of Nigeria for a gradual easing of monetary policy after the 50 basis point reduction to 13.50% in its benchmark rate in March. We expect further rate cuts in 2H19 but see the scope for monetary easing easing as constrained by a weakening of Nigeria’s balance of payments.” — Mark Bohlund

Bank of Korea

  • Current base rate: 1.75%
  • Forecast for end of 2019: 1.55%

The Bank of Korea is facing growing expectations of a rate cut as its bellwether economy takes a beating from the U.S.-China trade war and a steep downturn in the semiconductor sector. Faced with record household debt and soaring home prices, Governor Lee Ju-yeol looked to have charted a course toward policy normalization when he raised rates in November last year. Now he’s under pressure to reverse course as the Fed and ECB appear poised to cut rates.

Sluggish inflation will give Lee something of a free hand but with the benchmark rate at only 1.75% — half a percentage point above a record low – he has little policy room to maneuver, especially given that financial stability remains a concern. While the consensus is for at least one rate cut by the end of this year, economists surveyed by Bloomberg see two cuts at most — totaling 50 basis points — by the end of 2020.

What Bloomberg’s Economists Say: “Pressure is mounting on the BOK to reduce its benchmark interest rate. Global trade tensions are weighing on the growth outlook, offsetting any lift from more expansionary fiscal policy. Inflation remains sluggish and well-below the BOK’s 2% target. We expect a 25 basis point reduction in 4Q – though a rate cut from the Fed in July would likely prompt the BOK to move sooner.” — Justin Jimenez

Reserve Bank of Australia

  • Current cash rate target: 1%
  • Forecast for end of 2019: 0.75%

The RBA got back into the game in June and July, ending a three year hiatus with the first back-to-back interest-rate cuts since 2012. Governor Philip Lowe has signaled he’ll pause for a period to see how the economy responds to a combination of easing and government tax cuts. But further reductions remain on the table.

Australia’s exceptional status — underscored by its tightening of policy in 2009-10 after dodging the global recession — is well and truly over. It has just one percentage point of rate ammunition in hand and, like everywhere else, is sending out monthly search parties for inflation that return empty-handed.

What Bloomberg’s Economists Say: “The RBA signaled a pause in its easing cycle after lowering the cash rate target to a new low of 1% in July. Its 50 bps of cuts in June and July should be sufficient, in our view, to nurture green shoots in the housing market and business sentiment. House prices continued to fall in aggregate in June, but gains in Sydney and Melbourne put a recovery within sight. Broader stabilization in 2H would support household spending, the primary engine of growth. A brighter outlook, along with still-resilient exports, should maintain strong hiring momentum and nudge the unemployment rate lower – as desired by the RBA. Markets are priced for another 25 bp rate cut within the next 12 months.” — Tamara Henderson

Central Bank of Argentina

  • Current target: to freeze the expansion of monetary base and keep the peso stable

Argentina still has the world’s highest interest rate at 59%, though it’s down from 74% in early May, as policy makers want to ensure the country doesn’t suffer a repeat of the 2018 currency crisis in the run-up to the October election.

The central bank has recouped some investor confidence since adopting a new foreign exchange policy in April that gives it more freedom to intervene in the market to support the peso. The move received the blessing of the International Monetary Fund, which gave Argentina a record $56 billion credit line, allowing it to use part of those funds to sell dollars in the market.

What Bloomberg’s Economists Say: “BCRA continues to keep an ultra-tight grip on monetary policy and is unlikely to ease policy anytime soon. Slowing (though still high) inflation, a more benign external backdrop and a slightly improved sentiment towards post-election policies have driven rates down and the peso, stronger since mid-June. In an attempt to signal to markets it won’t cave in to the temptation of easier monetary conditions ahead of elections, BCRA set a floor for the Leliq and adjusted down targets for monetary base. BCRA has tools to handle volatility, but if markets start to price in a dramatic change in economic policy after elections, the currency may breach the ceiling of the reference zone. We assume policy continuity as our base-case scenario, and see rates declining to around 50% by year-end.” — Adriana Dupita

Swiss National Bank

  • Current Libor target rate: -0.75%
  • Forecast for end of 2019: -0.75%

With the European economy on shaky footing, the SNB is all but sure to stick with its expansive stance, consisting of negative interest rates plus a pledge to intervene in currency markets if needed.

Any further easing by the ECB cut is likely to spur a run on the franc. Should that happen, the SNB would retaliate with interventions and possibly a cut to interest rates. Although the SNB’s rates are already the lowest of any major central bank, President Thomas Jordan has said there’s additional room to cut if necessary.

Sveriges Riksbank

  • Current repo rate: -0.25%
  • Forecast for end of 2019: -0.25%

Sweden’s central bank stuck to its outlook its latest meeting in July, signaling it will lift rates again toward the end of the year or early next year as inflation hovers around its 2% target. With zero rates within reach again, policy makers are reluctant to steer off course even as colleagues abroad starting priming the stimulus pumps.

Governor Stefan Ingves and his colleagues are skeptical that the economic downturn will be as sharp as markets signal, but they are clearly in wait-and-see mode on how further stimulus from the Fed and ECB will affect the Swedish economy and the krona. The market is skeptical that more tightening will come, with futures even pricing in a small chance for a rate cut by the end of the year.

Norges Bank

  • Current deposit rate: 1.25%
  • Forecast for end of 2019: 1.4%

Norway’s central bank surprised markets in June when it raised rates for a third time in less than a year and signaled it was preparing to tighten two more times, perhaps as soon as September.

The economy of western Europe’s biggest oil producer is benefiting from a surge in investments in its petroleum industry, which has pushed down unemployment and driven wages higher and kept inflation above target. The Norwegian krone has also remained weak, giving the central bank further room to raise rates without hurting exports.

Reserve Bank of New Zealand

  • Current cash rate: 1.5%
  • Forecast for end of 2019: 1.25%

Governor Adrian Orr led the developed world when he cut rates in May, and while others have since caught up he has flagged further easing is in the pipeline.

Citing the weaker economic outlook at home and abroad, Orr said in June that a lower cash rate may be needed to meet the RBNZ’s inflation and employment objectives.

Economists are predicting a second cut in August and some expect a third before the end of the year. With the cash rate falling further into uncharted territory, some observers have even started to speculate about the possible use of unconventional policy tools. However, New Zealand’s economy continues to expand and growth is forecast to gather pace later this year.

What Bloomberg’s Economists Say: “The RBNZ cut the official cash rate by 25 bps in May and signaled in June that more easing was likely. We expect another 50 bps of cuts in 2H. The RBNZ’s projections from May saw inflation remaining below the midpoint of the 1-3% target until 2Q 2021, even with employment broadly at the maximum sustainable level. It could take longer, though, absent further countermeasures by the RBNZ. Growth, at 2.5% in 1Q 2019 and 4Q 2018, was the weakest since 2013, and indicators for 2Q suggest price pressures remained muted. Importantly, the New Zealand dollar has been relatively resilient against trading partners, and would likely face additional upward pressure if other central banks further eased monetary policy.” — Tamara Henderson

National Bank of Poland

  • Current cash rate: 1.5%
  • Forecast for end of 2019: 1.5%

Polish interest rates, on hold at a record-low 1.5% since May 2015, are unlikely to be changed this year. Central bank Governor Adam Glapinski maintains that the longest ever pause in borrowing costs could extend to 2022, when the term of this Monetary Policy Council ends.

Buoyed by the dovish mood globally, Glapinski is looking past the EU’s steepest pickup in inflation this year, saying price growth remains in check and will ease back to tolerable levels without the need for a rate hike. There are reasons to doubt that scenario, however. They include potential departures of low-cost Ukrainian workers for Germany and a surge in food costs.

Czech National Bank

  • Current cash rate: 2%
  • Forecast for end of 2019: 2%

The Czech central bank, one of the most aggressive inflation-fighters among global peers, has paused its tightening push after lifting rates for the eighth time in two years in May. While domestic price growth is running above the target, policy makers are now focusing more on risks abroad that could impact the export-oriented economy.

The central bank says the benchmark should stay unchanged for about a year. Governor Jiri Rusnok says ideally borrowing costs would resume rising after the pause — because real interest rates are still negative — but he hasn’t ruled out a cut if external risks escalate. “Neither we, nor the major central banks in the world, know a lot at this moment about how much these uncertainties will materialize and manifest in the real economy during this cycle,” Rusnok said after keeping rates on hold in June.

Methodology: Based on median estimate in monthly or quarterly survey, where available, or most recent collected forecasts. All interest rate and forecast data is as of July 1


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