By Mahmut Cil and Emir Yildirim
ISTANBUL (AA) - Central banks are preparing with caution to determine monetary policies in the face of Washington’s protectionist trade policies, amid global economic uncertainties, recession concerns in the US and the EU, and falling manufacturing activity.
Tariffs and negotiations are at the forefront of uncertainties and the focus of investors and economic circles, but all eyes are on major central banks’ monetary decisions in May.
The Bank of Japan (BoJ) was one of the last to tighten its monetary policy in response to wage increases and fueling inflation risks. The BoJ kept its policy rate unchanged at 0.5% in March at its last meeting, due to weakness seen in the Japanese economy and a moderate recovery, while corporate profits improved and fixed capital investments rose.
Estimates show that the BoJ will keep its rate unchanged on May 1 but it is expected to raise it by 25 basis points in June.
Meanwhile, the inflation and recession risks in the US due to President Donald Trump’s protectionist trade policies made the Fed’s job all the more difficult, as the bank is expected to keep its policy rate unchanged at 4.25% to 4.5% on May 7, while money markets expect a cut in June with a 66% probability.
The Fed’s Beige Book for April said tariff-induced uncertainties affected the economic outlook. The bank’s next steps will be influential on other central banks.
Trump criticized the Fed for delaying rate cuts. Analysts said the Trump administration’s statements on monetary policy will be followed, as a potential policy disagreement between the administration and the Fed could give rise to risk perception.
In the UK, the Bank of England (BoE) is expected to cut rates in May to revive its slowing economy, as manufacturing activity and growth are at risk, as well as to lower borrowing costs. Money markets estimate that the BoE is certain to cut its policy rate from 4.5% to 4.25% on May 8.
The bank kept its policy rate unchanged in line with market estimates in March, as eight members, including Governor Andrew Bailey, voted to keep it unchanged, while only one member voted to lower it to 4.25%. Analysts said the bank is expected to continue its easing cycle due to the March’s consumer inflation coming in at 2.6%, below estimates.
As for Asia, the Reserve Bank of Australia lowered its reference interest rate by 25 basis points to 4.1% in February, marking its first cut since October 2020. The cut was in line with the weakening inflation in the country.
The bank is expected to cut its policy rate by 25 basis points to 3.85% on May 20.
The Reserve Bank of New Zealand is estimated to cut its policy rate by 25 basis points to 3.25% on May 28. It said in April that the annual consumer inflation remained close to the midpoint of the target range of 1% to 3% but US tariffs, retaliations and rising uncertainties would affect global growth.
The Bank of Korea (BOK) in South Korea is expected to announce its monetary policy decision May 29, though it is unclear what it will decide. Analysts said the bank kept its policy rate unchanged at 2.75% in April, citing downside risks to growth and increased volatility in the global financial markets due to uncertainties stemming from US tariffs.
The Turkish Central Bank Monetary Policy Committee will not meet in May. The bank last raised its policy interest rate by 350 basis points to 46% on April 17. The next meeting is expected June 19.
The monetary policy decisions of the central banks in Sweden, Norway, Romania, Hungary, Poland and Czechia will be monitored.