We concur that the ECB will ‘go its own way’ and begin easing monetary policy sooner, likely starting with a 25 bps reduction at the June meeting, which seems to be the current working assumption of the council. A more constructive stance on duration in the Eurozone hence makes sense. What is more, if history is any guide, yield curves in markets where central bank rate cuts are imminent, such as in Sweden, should show a steepening bias – with a spike in commodity prices arguably posing a risk to this.
The notion that the Fed’s next move will be a rate hike rather than a cut appears to be hasty from our perspective. We maintain that the Fed is capable of implementing cuts in the third and fourth quarters, but this is contingent upon receiving favorable inflation data shortly or observing signs of weakening in the US’s economic fortitude. A more immediate change is to be expected in the Fed’s balance sheet policy, where the pace of QT seems set to be reduced soon.
Elsewhere, both the PBoC and the BoJ will likely continue to also ‘go their own way’ in setting monetary policy. While foreign exchange pressures may postpone an additional reduction in the policy rate corridor until the third quarter, we anticipate that the PBoC will introduce further balance sheet expansion measures. As for the BoJ, we anticipate two additional rate hikes later in the year, with the timing of these increases dependent on the performance of the Japanese yen.
Figure 1 – Outlook for central banks’ policy rates
Source: Bloomberg, Robeco, change by end 2024, based on money market futures and forwards; 15 April 2024.
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