The economic calendar for the week ahead will see the BoE and RBNZ Meetings. The RBNZ’s meeting is due on Wednesday and this comes ahead of the quarterly inflation expectations report earlier in the week. Still the central bank is not expected to hike rates at this month’s meeting. Following on the heels of the RBNZ meeting, the BoE meeting is likely to garner more attention.
While there was an initial speculation of a rate hike at this week’s meeting, the expectations eased amid a slowdown in the economy which continues to point to a weak patch. Still, the BoE’s meeting is likely to be closely watched this week.
On the economic front, the UK’s inflation report is due this week alongside inflation data from China.
Here is quick recap of the markets this week.
RBNZ Meeting: Probably a non-event
The Reserve Bank of New Zealand will be holding its monetary policy meeting this week on Wednesday. Based on the recent economic data from New Zealand, the RBNZ is not expected to bring any new changes to its outlook on interest rates. However, in the rare possibility of a change in the outlook, the RBNZ could be seen bringing forward its rate hike expectations.
The central bank, at its previous meeting has kept its forward guidance unchanged. The main narrative has been that inflation continues to remain weak and this justified keeping rates low to accomodate growth. The central bank had already forecast that the OCR, which is at 1.75% will remain at the current level at least until mid to late 2019.
Economic data from New Zealand over the past few weeks remained broadly unchanged but with a slight hint of hawkish outlook. The decline in the exchange rate of the New Zealand dollar was well below the RBNZ’s forecast and the housing market was seen to be rising stronger than expected.
Most recently, the quarterly employment figures showed a mixed bag. While New Zealand’s unemployment rate fell to a nine-year low, wage growth remained muted. However, analysts expect that wage growth could come in the next few quarters. This remains consistent with the RBNZ’s forecast on rates and indicates that there is a strong change of no major changes to forward guidance being announced at this week’s meeting.
Bank of England’s meeting to be closely watched
The Bank of England’s monetary policy meeting is scheduled for this Thursday. What was once considered a done deal as far as a rate hike was concerned looks to have abated amid the onslaught of a weak patch of economic data.
The Bank of England had previously signaled that rates would rise in the “near term.” This was at the previous monetary policy meeting that was held in March. Back then, BoE officials voted to keep interest rates unchanged at 0.5%, after the central bank hiked rates for the first time in a decade in November last year. There were also two dissenting votes at the previous meeting with the two members voting in favor of a rate hike.
However, economic data showed that the UK’s first quarter GDP grew at a sluggish pace of just 0.1%. If this wasn’t enough, the leading indicators such as the IHS Markit’s PMI’s for the month of April indicated no major signs of a rebound in the economy. The silver lining was the construction PMI which managed to rebound after falling below the 50-level on the index.
It was only in February that the odds of a rate hike shot up following the inflation report for February. This was when the BoE Governor Mark Carney said that interest rates were likely to rise sooner than later. The hawkish momentum was maintained amid the UK securing a Brexit transitory deal which lowered the odds of a hard Brexit. However, since April, the weak patch of data cast doubts on whether the BoE would be able to justify a rate hike.
