Reserve Bank of New Zealand To Decide On Interest Rates, UK Inflation Report In Focus

The Reserve Bank of New Zealand (RBNZ) interest rate decision and the UK CPI inflation report are among the most important data releases as the week starts.

In Australia, the Reserve Bank of Australia (RBA) May meeting minutes showed that board members considered whether to raise borrowing costs but decided to keep the bank’s monetary policy on hold. RBA’s policymakers noted that the labour market had proved tighter than expected, adding that “flow of data had increased risks of inflation staying above target for longer.”

Federal Reserve (Fed) Vice Chair of the Board of Governors Phillip Jefferson said yesterday that inflation is not dropping quickly enough to force the Fed to cut interest rates. In his remarks, he noted: “April's better inflation reading is encouraging. I believe that our policy rate is in restrictive territory as we continue to see the labor market come into better balance, and inflation decline although nowhere near as quickly as I would have liked.”

UK CPI Inflation Report April 2024

The Office for National Statistics (ONS) in the UK is expected to publish the CPI inflation report for the month of April on Wednesday. Inflation data play a crucial role in determining the Bank of England’s monetary policy so any surprises may impact the British pound’s exchange rate versus other currencies, especially the ones coming from major economies such as the US dollar and the euro.

Economists suggest that headline CPI inflation rose by 2.1%, on an annualised basis, in April and by 0.2% on a monthly basis with both figures being significantly lower than March’s readings. Core CPI inflation is likely to come in at 3.6% on a yearly basis, lower than the 4.2% figure recorded in March.

A decline in inflationary pressures could boost expectations of rate cuts by the BoE. Market analysts expect that the BoE could start reducing rates starting from the June meeting.

RBNZ Interest Rate Decision

On Wednesday, it will be the RBNZ’s turn to hold its monthly monetary policy meeting and decide on borrowing costs. Economists’ forecasts suggest that New Zealand’s central bank will likely keep interest rates on hold with the Official Cash Rate (OCR) remaining at 5.5%. If the forecast is confirmed, it would be the seventh consecutive time that the board hasn’t altered its monetary policy.

Yesterday (May 20), the New Zealand Institute of Economic Research (NZIER) Monetary Policy Shadow Board advised the RBNZ to keep the OCR unchanged in the upcoming Monetary Policy Statement, as it is concerned about persistent high inflation. NIEZR’s economists noted that “a cautious approach by the RBNZ is still needed, given that upside risks to the inflation outlook remain. Overall, this is broadly consistent with our view that the RBNZ should start reducing the OCR from mid-2025.”

Canada CPI Inflation April 2024 Reports

The Bank of Canada (BoC) and Statistics Canada CPI inflation reports for April will be in the spotlight later today. According to some economists, Canada’s statistical service data will likely show headline inflation dropping to 2.7% on an annualised basis from 2.9% recorded in March. Monthly CPI inflation is estimated to drop to 0.5% in April from 0.6% in March.

Market analysts at RCB Economics suggest that a softer inflation print could lead the Bank of Canada to move forward with a rate cut next month. In their report, released on May 19th, they note: “Absent an upside surprise, we think the soft conditions in the economy and labour markets should warrant a 25-bps interest rate cut from the BoC in June. In April, we expect year-over-year CPI growth will tick down to 2.7%, from 2.9% in March, edging further towards the BoC’s 2% inflation target despite higher energy prices.”

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