Attention to What Central Banks Are Doing with Interest Rates
June 5, 2025
The European Central Bank is widely expected to cut its interest rate for the eighth time in the past year. An anticipated 25-basis point reduction of the deposit rate to 2.0% would bring the cumulative drop to 250 basis points from peak.
President Trump has been haranguing Federal Reserve Chairman Powell for not cutting interest rates to the extent that the ECB has been doing. Fact is that U.S. demand-supply conditions have been tighter than those in the euro area, justifying a less restrictive stance than in America. Also, market confidence in an independent ECB policy going forward is much greater than in the U.S., so Fed officials have to work harder to anchor long-term inflation expectations.
Three other central banks have already announced the results today of their latest monetary policy reviews. Each kept rates steady.
- The National Bank of Poland’s key interest rate was cut by 50 basis points a month ago, so a change this month had not been anticipated. The 5.25% current rate level is down from 6.75% maintained for a year between September 2022 and September 2023. Polish inflation of 4.1% is at an 11-month low.
- Kazakhstani consumer price inflation rose to a 19-month high of 11.3% in May from 8.3% last September, prompting officials at the National Bank to tighten monetary policy with interest rate hikes of 100 basis points last November and 125 basis points in March. The current rate of 16.5% was left unchanged at its most elevated level since October 2023. Officials do not anticipate inflation approaching their 5% target until late 2027 or perhaps later.
- The National Bank of Ukraine’s most recent interest rate change was also done in march. Rate increases totaling 250 basis points have been made since December, but the 15.5% current level is just slightly higher than year-on-year CPI inflation that at 15.1% in April was its highest in 28 months and up from 3.2% in March-April of 2024.
South Korean GDP sank 0.2% last quarter, leaving year-on-year growth at zero percent versus 3.3% in the first quarter of 2024.
Irish GDP, on the other hand, leaped 9.7% in the first quarter. A jump of 22.2% from a year earlier contrasts sharply with the 4.5% on-year contraction posted in the first quarter of 2024. Ireland’s service sector purchasing managers index improved to a 2-month high of 54.7 last month from a 15-month low of 52.8.
Producer prices in the euro area slumped 2.2% in April, their sharpest monthly slide in two years and resulting in a 4-month low year-on-year advance of just 0.7%.
Construction purchasing manager indices for Euroland and the U.K. printed in sub-50 territory. Euroland’s PMI of 45.6 was at a 2-month low and including 2-month lows of 44.6 in Germany and 43.1 in France. Italy’s 50.5 reading was a 2-month high. The British construction PMI rose 1.3 points to a 4-month high of 47.9 in May.
Cypriot CPI inflation slid to a 50-month low of -0.2% in May from 0.2% in April and a peak of 10.9% in April 2022.
Taiwanese CPI inflation slowed to 1.55% in May, its lowest reading since March 2021.
German industrial orders grew 0.6% in May on top of a 3.4% jump in April. A 4.8% increase over the last 12 months contrasts with a 12-month dip of 0.2% recorded in March.
Italian retail sales rose 0.7% on month and by 3.7% (most in 22 months) from a year earlier.
Shortly ahead of the ECB rate announcement and the release of U.S. jobless claims, trade balance and productivity data, the dollar and U.S. stock futures were little changed in overnight trading. European share prices were marginally up, while the Japanese Nikkei had closed down 0.5%. Ten-year sovereign debt yields were a tad lower, while gold, Bitcoin and oil prices had firmed somewhat.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland and British contruction PMI indices, German orders, National Bank of Kazakhstan, National Bank of Poland, National Bank of Ukraine
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