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MNI Global Week Ahead - Central Banks Across DM and EM

The week ahead is headlined by central bank decisions across DM and EM.
Story

See below for the key events in Developed and Emerging markets next week:

Developed Markets

WEDNESDAY - Australia Q4 CPI
 
Australian Q4 & December CPI data are released on Wednesday January 19 and will be monitored closely given there are significant rate cut expectations for the February 18 RBA meeting. Headline will again be difficult to read given government electricity rebates and so there will be even more attention on the underlying trimmed mean measure, which is likely to moderate from Q3's 3.5%. But services inflation remains a particular concern of the RBA's and it is proving sticky with it trending higher over Q2 and Q3. Also NZ Q4 data suggest that there's a risk that there was little improvement in Australia's services prices at the end of 2024.
 
WEDNESDAY - Riksbank Decision
 
Consensus has shifted more concretely towards a 25bp Riksbank cut in January, which would bring the policy rate to 2.25%. The December meeting minutes highlighted more appetite for earlier cuts than the decision itself suggested, with Breman, Jansson and Bunge signalling a willingness to cut rates in early 2025. Data outturns since December have also supported such an approach. The December policy statement suggested a “more tentative” approach to policy was required going forwards, with the policy rate likely to be cut once more in H1 2025 “if the outlook for inflation and economic activity remains unchanged”. The policy rate path projection and Governor Thedeen’s December press conference comments suggested a cut in March was slightly more likely than January. The December minutes (and subsequent commentary) suggested Thedeen and Seim may still favour such an approach, but they appear to be in the minority. 
 
WEDNESDAY - Bank of Canada Decision
 
The Bank of Canada is widely expected to cut its policy rate by 25bp on Wednesday as it dials back the pace of easing after two consecutive 50bp cuts. The last, a ‘hawkish’ 50bp cut, could well have been a prelude to a pause this month if going on subsequent data alone, with core inflation accelerating to 3.5% annualized over the latest three months and some outsized labour market strength following last year’s 125bp of cuts. However, this of course comes with US President Trump’s second term underway and the musing of 25% tariffs possibly starting on Feb 1. This greatly complicates the outlook for the BoC, with a meeting just three days prior to potential tariffs, leaving a modest cut this week seen as the most prudent approach. It will take the overnight rate target to 3.00% for a little further within the BoC’s estimated range for the neutral rate of 2.25-3.25%, improving flexibility. New forecasts will be scrutinized for latest thinking around potential impacts from tariffs, with the matter better suited in a dedicated section of the Monetary Policy Report.
 
WEDNESDAY - FOMC Decision
 

The FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings, as it shifts to a more patient phase of its easing cycle after delivering 100bp of cuts. The forward guidance adopted in December points to a data-dependent approach to assessing the “extent and timing” of additional rate adjustments. To this end, there has been only limited inflation and labor market data since then, while the Trump administration’s policies and their potential impact on the economic outlook are still in a formative stage. With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference which will likely repeat the same themes heard six weeks earlier. As such, the risks to the market reaction to the meeting lean slightly dovish in the context of only one more full rate cut being priced for the cycle. While he won’t be able to add any additional commentary on the Fed’s response to prospective fiscal/trade/immigration policy shifts, we suspect Powell will remain optimistic on the inflation trajectory and reiterate that 50bp of cuts remain the FOMC’s baseline scenario this year. In other words, the bias toward easing remains intact. Additionally, Powell probably won’t completely rule out another cut as soon as the next meeting in March, while being careful to couch any future moves as data- and outlook- dependent, and emphasizing that the Fed can afford to be patient so long as the economy and labor market remain solid. The FOMC is due to begin discussing its 5-year framework review at this meeting though only in preliminary fashion, while we would not be surprised if there were also initial discussions over balance sheet policy in 2025 (though decisions on halting QT will probably not be mulled until at least March or May).

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See below for the key events in Developed and Emerging markets next week:

Developed Markets

WEDNESDAY - Australia Q4 CPI
 
Australian Q4 & December CPI data are released on Wednesday January 19 and will be monitored closely given there are significant rate cut expectations for the February 18 RBA meeting. Headline will again be difficult to read given government electricity rebates and so there will be even more attention on the underlying trimmed mean measure, which is likely to moderate from Q3's 3.5%. But services inflation remains a particular concern of the RBA's and it is proving sticky with it trending higher over Q2 and Q3. Also NZ Q4 data suggest that there's a risk that there was little improvement in Australia's services prices at the end of 2024.
 
WEDNESDAY - Riksbank Decision
 
Consensus has shifted more concretely towards a 25bp Riksbank cut in January, which would bring the policy rate to 2.25%. The December meeting minutes highlighted more appetite for earlier cuts than the decision itself suggested, with Breman, Jansson and Bunge signalling a willingness to cut rates in early 2025. Data outturns since December have also supported such an approach. The December policy statement suggested a “more tentative” approach to policy was required going forwards, with the policy rate likely to be cut once more in H1 2025 “if the outlook for inflation and economic activity remains unchanged”. The policy rate path projection and Governor Thedeen’s December press conference comments suggested a cut in March was slightly more likely than January. The December minutes (and subsequent commentary) suggested Thedeen and Seim may still favour such an approach, but they appear to be in the minority. 
 
WEDNESDAY - Bank of Canada Decision
 
The Bank of Canada is widely expected to cut its policy rate by 25bp on Wednesday as it dials back the pace of easing after two consecutive 50bp cuts. The last, a ‘hawkish’ 50bp cut, could well have been a prelude to a pause this month if going on subsequent data alone, with core inflation accelerating to 3.5% annualized over the latest three months and some outsized labour market strength following last year’s 125bp of cuts. However, this of course comes with US President Trump’s second term underway and the musing of 25% tariffs possibly starting on Feb 1. This greatly complicates the outlook for the BoC, with a meeting just three days prior to potential tariffs, leaving a modest cut this week seen as the most prudent approach. It will take the overnight rate target to 3.00% for a little further within the BoC’s estimated range for the neutral rate of 2.25-3.25%, improving flexibility. New forecasts will be scrutinized for latest thinking around potential impacts from tariffs, with the matter better suited in a dedicated section of the Monetary Policy Report.
 
WEDNESDAY - FOMC Decision
 

The FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings, as it shifts to a more patient phase of its easing cycle after delivering 100bp of cuts. The forward guidance adopted in December points to a data-dependent approach to assessing the “extent and timing” of additional rate adjustments. To this end, there has been only limited inflation and labor market data since then, while the Trump administration’s policies and their potential impact on the economic outlook are still in a formative stage. With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference which will likely repeat the same themes heard six weeks earlier. As such, the risks to the market reaction to the meeting lean slightly dovish in the context of only one more full rate cut being priced for the cycle. While he won’t be able to add any additional commentary on the Fed’s response to prospective fiscal/trade/immigration policy shifts, we suspect Powell will remain optimistic on the inflation trajectory and reiterate that 50bp of cuts remain the FOMC’s baseline scenario this year. In other words, the bias toward easing remains intact. Additionally, Powell probably won’t completely rule out another cut as soon as the next meeting in March, while being careful to couch any future moves as data- and outlook- dependent, and emphasizing that the Fed can afford to be patient so long as the economy and labor market remain solid. The FOMC is due to begin discussing its 5-year framework review at this meeting though only in preliminary fashion, while we would not be surprised if there were also initial discussions over balance sheet policy in 2025 (though decisions on halting QT will probably not be mulled until at least March or May).

Keep reading...Show less