WASHINGTON: An anxious sense of wait-and-see may emerge from central banks in the coming week, in their first collective assessment of how president Donald Trump’s trade policies are impacting the world economy.
While officials from Washington to London and Tokyo have already set borrowing costs once since the US president entered the White House in January, those decisions preceded a marked escalation in his rhetoric and measures against neighbours, allies and competitors alike.
With global tariffs now in place on steel and aluminium, and with Canada, China and the European Union all further suffering Trump’s ire, what were unrealised threats a few weeks ago have now emerged as full-blown hindrances to commerce.
Central bankers struggling to gauge whether the impact will be greater on growth or inflation may well choose to do nothing for now.
New-found worries about a potential US recession that gripped Wall Street in the past week probably won’t spur the US Federal Reserve (Fed) to deliver more easing for now, and unchanged interest rates are also the most likely outcomes at meetings in Japan, the United Kingdom and Sweden.
Officials in South Africa, Russia and Indonesia may follow suit.
Some others will probably act immediately, though, against pressing risks – while warily assessing the shockwaves of Trump’s actions.
In Brazil, for example, the central bank is widely anticipated to raise borrowing costs again to fight resurgent inflation.
In all, officials responsible for half of the world’s 10 most-traded currencies, along with other Group of 20 peers, are poised to set rates over the coming days.
European Central Bank president Christine Lagarde last Wednesday described the challenge confronted by many of global counterparts.
With her own institution recently having stopped short of signalling its next move out of caution about the backdrop, she said the job of monetary policymaking just got harder.
“The level of uncertainty we are facing is exceptionally high,” Lagarde said.
“Maintaining stability in a new era will be a formidable task.”
With Fed officials expected to hold rates steady on Wednesday at the conclusion of their two-day meeting, the market will focus on officials’ updated economic projections and chair Jerome Powell’s press conference for clues about the path ahead.
Economists expect officials to lower borrowing costs twice this year, starting in September, according to a Bloomberg survey. For now, policymakers have signalled they’re in a wait-and-see mode as they seek further progress on inflation and greater clarity on the economic impact of Trump’s policies.
Powell emphasised this month that the Fed doesn’t need to be in a hurry to cut rates. But amid a recent sell-off in stocks paired with mounting growth concerns and souring consumer sentiment, the Fed chief will likely be pressed on whether the central bank will be ready to step in should the economy turn south.
The Bank of Japan is widely expected to hold rates steady on Wednesday as authorities assess the impact of their January hike, with the focus falling on whether persistent yen weakness, high inflation and robust wage gains may open the door to a hike on May 1.
About half of surveyed economists said such an increase won’t come until July, though.
Indonesia’s central bank on Wednesday may continue to pause its easing cycle.
Monetary authorities are aiming to limit capital outflows after the rupiah faced renewed pressure following the decision to keep rates on hold in February.
A day later, lenders in China, with guidance from the central bank, are expected to hold the one-year and five-year loan prime rates steady.
That will follow data earlier in the week likely to have been distorted by the Lunar New Year holiday, with economists anticipating a 5% year-on-year increase in industrial production, a moderated decline in property investment and increases in both retail sales and fixed asset investment.
Taiwan’s central bank decision is also due on Thursday, and officials in Taipei are expected to keep the benchmark rate at 2% for a fourth straight meeting.
The Bank of England (BoE) is set to hold fire on another cut on Thursday.
That would leave its rate at 4.5% as it sticks to a gradual, once-a-quarter pace for reductions.
While the latest growth data showed a surprise contraction, the BoE’s Monetary Policy Committee is likely to prime investors for a cautious approach to further easing in the face of mounting geopolitical tensions, stubborn price pressures, and uncertainty over the impact of the Labour government’s first budget.
Dissenting policymakers may back an immediate rate cut, but other officials on the panel with a dovish leaning have signalled increasing hesitancy in recent weeks.
In contrast with its advanced-economy peers, the Swiss National Bank’s decision on Thursday is laden with suspense.
Many forecasters anticipate a final quarter-point reduction, to 0.25%, to cushion growth from a global backdrop of likely Trump-induced economic weakness.
But with less pressure on the franc for now, the need to preserve precious ammunition for future easing as a shield against currency inflows could persuade officials to keep borrowing costs unchanged.
The Riksbank is set to hold its rate at 2.25% after five consecutive cuts.
Officials have signalled a preference to gauge the lagged impact of those steps on a tepid economy and faster-than-expected inflation may have further cemented that view.
Other data have been contradictory.
Sweden’s gross domestic product rose the most in two and a half years during the fourth quarter, but survey indicators point to weakness.
Analysts have increasingly dropped predictions for one more quarter-point move this easing cycle, while overnight swaps now price in only three basis points (bps) of cuts by the August meeting, down from 38 bps seen at the end of last month.
After three successive hikes, South African policymakers may keep their rate at 7.5% on Thursday as they weigh the impact of global tariffs on their inflation forecasts.
Neighbouring Eswatini, whose currency is pegged to the rand, may also hold the following day.
With inflation having risen above 10% in February, the Bank of Russia will assess the need on Friday for another hike in its rate, which has been at a record high 21% since October.
Bloomberg Economics expects policymakers to opt for a third consecutive hold.
The central bank will likely leave its key rate unchanged at 19.5% for a fifth meeting in a row on Tuesday as officials try to curb high inflation.
Policymakers cut the base rate by 25 bps to 2.5% in December. Since then, inflation has accelerated from under 1% to about 2%, which may cause them to hold off easing again tomorrow.
The central bank in Reykjavik may slow the rate of easing at its second decision of the year on Wednesday.
Local lenders Landsbankinn hf and Islandbanki hf both predict a quarter-point reduction, to 7.75%.
Banco Central do Brasil’s March meeting on Wednesday will be missing some of its usual drama, as policymakers have telegraphed they’ve lined up a third straight 100 bps rate hike, to 14.25%.
Analysts and traders expect it to end 2025 at 15%. — Bloomberg