Euro area central bankers are widely expected to leave key interest rates unchanged Thursday amid mounting evidence that the Iran war is driving consumer costs higher as it undercuts economic growth.

Traders and economists agreed that any policy action from the public lender will come at the next decision-making meeting of the European Central Bank in six weeks, with both calling for a 25 basis-point hike at that juncture.

Preliminary data for April Eurozone annual inflation and Q1 GDP are due just hours before the ECB is set to announce its decision, and neither data point is likely to garner applause at the bank’s headquarters in Frankfurt. An economists’ poll said headline annual price growth this month is expected to rise three-tenths to 2.9%, which would be the highest mark since the end of 2023 and nearly a point more than the central bank’s target of 2% over the medium term. Euro area economic growth is forecast at 0.2% q/q, with the first month of the war – March – part of the mix. (LS - Continue Reading)

Wednesday’s rate decision is likely to be more about a changing of the guard than a shift in current policy, as officials look set to defer to the incoming Fed chairman.

With the Federal Open Market Committee (FOMC) widely expected to leave the target range unchanged at 3.50–3.75%, developments in the Middle East and uncertainty around energy prices are set to reinforce a cautious stance among policymakers.

Barclays’ Marc Giannoni said the bank expects the statement to drop the reference to “additional” adjustments, effectively signalling that the FOMC no longer sees the next policy move as necessarily a continuation of the recent easing cycle, given firmer inflation prints and upside risks to prices. “We think most policymakers view the current policy stance as well-positioned to address risks on both sides of the Fed's dual mandate. This implies policy rates on hold for an extended period until there is more clarity about the conflict and its economic effects.” (LS – Continue Reading)

The Bank of Canada’s Governor, Tiff Macklem, is expected to signal a continued preference for holding interest rates at current levels, given the ongoing uncertainty surrounding energy security.

The bank’s Governing Council is widely anticipated to keep the overnight rate unchanged at 2.25% when it announces its decision on Wednesday. The central bank chief is likely to state that policymakers are awaiting a clearer understanding of the crisis's spillover effects and the potential implications for the domestic economy.

The statement accompanying the March decision acknowledged that the nearly three-week-old Middle East conflict had heightened volatility in global energy prices and financial markets, raising risks to the global economy. The tone was cautious regarding the outlook for the year. (LS – Continue Reading)

Australia’s inflation remained above the top of the Reserve Bank’s 2-3% target band as higher fuel costs from Middle East supply disruptions compounded already-elevated price pressures to keep policymakers on a tightening path.

The closely-watched trimmed mean gauge of annual consumer prices, which shaves off volatile items, rose 3.5% last quarter, matching economists’ estimates, government data showed Wednesday. In the first three months of the year, the underlying measure rose 0.8% from the prior quarter, slower than the forecast 0.9%. (BBG – Continue Reading)