Daily update
Daily update
- This week marks a new phase in the battle between markets and central banks about the timing of rate cuts. We are not at the end—no one is expecting the assorted central bank meetings to produce rate cuts this week. We are not at the beginning of the end—explicit forward guidance of rate cuts also seems unlikely. But we are at the end of the beginning. Ongoing disinflation forces continue to make a forceful case for rate cuts in the second quarter.
- Rate cuts this year should not be considered to be policy stimulus. As inflation continues to slow, rate cuts are needed to prevent rising real rates, which would choke growth more aggressively. This year’s policies are anti-depressants, not stimulants.
- The Bank of Japan is the exception to the rate cut story, and there is a chance that the long experiment with negative interest rates will end this week. Negative interest rates may start as a signal of cheap money, but they rapidly morph into a tax on the banking system (and larger savers)—a questionable stimulus.
- The ECB avoids taking a decision this week. Eurozone consumer price inflation is due today but this is a final figure which rarely differs from the flash data.
