Key facts
- The Bank of Japan is expected to hike interest rates in June.
- Traders are pricing in an 80% chance of a Bank of Japan rate hike on June 16.
- The US Federal Reserve may abandon its easing bias before the June FOMC meeting.
- The Reserve Bank of India kept its benchmark repo rate at 5.25%.
- The RBI lowered India's GDP growth forecast to 6.6%.
- The RBI raised India's inflation projection to 5.1%.
- The RBI scrapped capital gains tax for foreign bondholders to support the rupee.
- The Indian rupee gained 0.9% against the US dollar, closing at 94.9450.
- The Central Bank of Costa Rica maintained its monetary policy rate at 3.25%.
- The RBA is monitoring the impact of higher rates and energy price shocks.
Central banks across the globe are grappling with a confluence of economic pressures, leading to varied monetary policy decisions and outlooks. The Bank of Japan is reportedly expected to implement an interest rate hike in June, with traders assigning an 80% probability to a June 16 increase, provided there is no significant escalation of Middle East conflict. Concurrently, the US Federal Reserve might abandon its easing bias prior to the June Federal Open Market Committee meeting, a move that could bolster the US dollar.
In India, the Reserve Bank of India (RBI) has opted to maintain its benchmark repo rate at 5.25%. This decision comes amidst a challenging environment characterized by a depreciating rupee, inflation risks, and growth concerns. The RBI has introduced measures to support the rupee, such as eliminating capital gains tax for foreign bondholders. The central bank has also revised its economic projections, lowering the Gross Domestic Product (GDP) growth forecast to 6.6% for the fiscal year and increasing the inflation projection to 5.1%. These projections assume an average crude oil price of $95 per barrel. The RBI Governor has indicated a willingness to intervene against excessive currency volatility and to act if inflation becomes generalized, citing household expectations of rising inflation due to geopolitical tensions and monsoon concerns. Furthermore, RBI Deputy Governor Swaminathan J has cautioned Indian banks to manage new risks beyond their balance sheets, including those stemming from geopolitics, climate change, and artificial intelligence, while affirming the strength of the Indian financial system.
The Reserve Bank of Australia (RBA) is closely monitoring the economic impact of its higher interest rates and the global energy price shock. Governor Michele Bullock noted that policy tightening appears to be slowing demand, with the full effects anticipated over the next one to two years. The Central Bank of Costa Rica (BCCR) has unanimously decided to keep its monetary policy rate unchanged at 3.25%. This decision was influenced by persistent global uncertainties, particularly related to the Middle East conflict and oil prices. The BCCR forecasts inflation to return to positive territory in the second half of 2026.