Key facts
- The Bank of Japan raised its policy rate to 1%, a 31-year high.
- The Bank of England held its benchmark interest rate at 3.75% for a fourth consecutive meeting.
- UK annual wage growth excluding bonuses held at 3.4% in the three months to April.
- UK unemployment unexpectedly fell to 4.9%.
- The Federal Reserve maintained its benchmark interest rate.
- Nine out of 18 Federal Reserve policymakers forecast at least one rate increase.
- Brazil's central bank cut its benchmark Selic rate by 25 basis points to 14.25% for the third consecutive meeting.
- The Swiss National Bank maintained its key interest rate.
- New Zealand's economy saw a significant increase in the first quarter.
- Two central banks in Asia are expected to tighten monetary policy.
- The Czech central bank is considering an interest rate hike for the first time in four years.
- Citi economists withdrew their forecast for two interest rate hikes by India's central bank by March.
The Bank of Japan has raised its policy rate to 1%, marking a 31-year high, driven by concerns over broadening price rises. In contrast, the Bank of England has held its benchmark interest rate steady at 3.75% for the fourth consecutive meeting. This decision follows recent UK data showing annual wage growth, excluding bonuses, holding at 3.4% and unemployment unexpectedly falling to 4.9% in the three months to April. Policymakers at the Bank of England cited easing inflation fears and a cooling labor market as reasons for maintaining the current rate.
The U.S. Federal Reserve has also maintained its benchmark interest rate but has indicated a potential for a rate hike later this year due to persistent inflation concerns. Notably, nine out of 18 Federal Reserve policymakers now forecast at least one rate increase, a shift from previous projections. This hawkish stance from the Fed, alongside the Bank of England's decision, has pressured UK stocks, with miners and financials experiencing declines.
In other regions, Brazil's central bank has cut its benchmark Selic rate by 25 basis points for the third consecutive meeting, bringing it to 14.25%. However, policymakers acknowledged a tougher inflation outlook and raised forecasts, leaving future policy steps uncertain amid risks from election-year fiscal stimulus. The Swiss National Bank has maintained its key interest rate, reaffirming its readiness to sell the Swiss franc to manage currency value, signaling continued vigilance over inflation and exchange rate stability.
Economic conditions vary globally. New Zealand's economy saw a significant increase in the first quarter, fueled by lower interest rates and a rise in consumer spending, a trend observed before the recent escalation of the Iran conflict. Conversely, two central banks in Asia are expected to tighten monetary policy further to guard against persistent inflation and currency risks, a stance likely to persist even if the Middle East conflict deescalates. The Czech central bank is also considering an interest rate hike for the first time in four years, balancing domestic inflation concerns with decreasing global energy price risks.
External factors are also influencing monetary policy decisions. Citi economists have withdrawn their forecast for two interest rate hikes by India's central bank by March, attributing this to reduced inflation risk stemming from a US-Iran peace deal. This deal's impact on oil prices was also a factor considered by the Bank of England in its decision to hold rates steady.