Global Central Banks Set to Diverge on Rates as Stubborn Inflation Stalks Fed, ECB

Stubborn inflation keeping US and European officials in tightening mode is likely to further decouple global monetary policy in coming months as the rest of the world forges its own path.

(Bloomberg) — Stubborn inflation keeping US and European officials in tightening mode is likely to further decouple global monetary policy in coming months as the rest of the world forges its own path.

With another hike in interest rates anticipated by the Federal Reserve and the European Central Bank for July, and some peers on a similar track, an aggregate gauge of borrowing costs calculated by Bloomberg Economics now shows a peak of 6.25% during the current quarter. That’s up from 6% foreseen three months ago.

But that higher overall number masks a far less synchronized picture than the world has been recently used to. Chinese policymakers started loosening last month, while central banks from India to South Africa are on a sustained hold for now. 

Turkish officials only just began their own tightening, and their Russian counterparts may be about to follow suit. The Bank of Japan is glacially moving toward removing stimulus one day too.

Entrenching the global divergence is a clouded juncture for central banks on either side of the Atlantic. Officials, most notably at the Bank of England, are confronting their failure until now to make a big enough dent in the inflation outlook — just as others pause to see if tightening so far might just need more time to take effect.

Whatever the case, policymakers still minded to keep rate hiking, such as those at the Fed, are entering a more hesitant phase as they increasingly watch for an impact on economic growth.

What Bloomberg Economics Says:

“How high? That was the big question for investors in the first half of 2023. For many central banks, we are finding that out. The first leg of the fight against inflation is nearing an end and rates will soon top out. For the second half, big question is, for how long? Our forecasts show underlying inflation on a slow descent. Absent a sudden economic slump, rate cuts in advanced economies like the US, euro area and UK are unlikely until mid-2024.”

—Jamie Rush, chief European economist

Here is Bloomberg’s quarterly guide to 23 of the world’s top central banks, covering 90% of the global economy.


US Federal Reserve

  • Current federal funds rate (upper bound): 5.25%
  • Bloomberg Economics forecast for end of 2023: 5.5%
  • Bloomberg Economics forecast for end of 2024: 4.75%
  • Market pricing: a 25 basis-point hike by September, maybe another by November, thereafter five quarter-point cuts next year

Federal Reserve officials look on track to keep raising rates despite a recent pause after 10 straight hikes as they try to slow a resilient US economy and hot labor market to cool inflation. Policymakers forecast rates reaching 5.6% this year, implying two more 25 basis-point increases from the current range of 5% to 5.25%.

Chair Jerome Powell said last month nearly all officials expect rates will move higher, and forecasts for two more hikes are a “pretty good guess” if the economy performs as expected. Investors predict a peak around 5.25%, with the Fed then cutting by 2024’s first quarter.

Policymakers have stressed there’s a lot of uncertainty about the rate outlook as they evaluate how recent banking failures are affecting credit conditions, putting extra weight on incoming data.

What Bloomberg Economics Says:

“Sticky core inflation will likely prompt the FOMC to raise the fed funds rate target range by another 25 basis points, bringing the upper end of fed funds rates to 5.5%. Cooling economic activity and rising unemployment will keep policymakers from further raising rates thereafter. In spite of the downturn, the Fed will likely opt to hold policy rates at the peak level of 5.5% for the rest of the year rather than cutting rates.”

—Anna Wong

European Central Bank

  • Current deposit rate: 3.5%
  • Bloomberg Economics forecast for end of 2023: 4%
  • Bloomberg Economics forecast for end of 2024: 3.25%
  • Market pricing: a further half-point in hikes to reach 4% by year end, followed by rate cuts of the same amount by the end of 2024

Despite an unprecedented 400 basis points of rate hikes in the space of a year, the clear message from the ECB is that it isn’t done yet. Another increase in July has essentially been pre-announced and voices calling for a pause after that are being drowned out by hawks keen on further tightening in the fall.

Stubborn underlying inflation is the concern, with several Governing Council members insisting it must settle into a clear downtrend before a pause can be considered. But with the headline measure of price gains already firmly in retreat, others fear the economic consequences of additional rate increases. Recent activity data suggest growth in the 20-nation euro zone is weakening, led by Germany.

What Bloomberg Economics Says:

“The ECB is approaching the end of its hiking cycle. Underlying inflation has crested and monetary tightening is having a significant impact on credit conditions. Bloomberg Economics forecasts two further 25-bp hikes in July and September. That will leave the deposit rate deep in restrictive territory at 4.00% — our estimate of neutral is 1.50% to 1.75%. We expect the first cut in June of next year as underlying inflation decelerates.”

—David Powell

Bank of Japan

  • Current policy-rate balance: -0.1%
  • Bloomberg Economics forecast for end of 2023: -0.1%
  • Bloomberg Economics forecast for end of 2024: 0%
  • Market pricing: yen swaps indicate rates steady at -0.1% until next year

New BOJ Governor Kazuo Ueda has so far surprised market players with his dovish tone since taking the helm. That’s prompted economists to push back their calls for policy adjustment and helped nudge yields away from the ceiling the BOJ defends.

BOJ watchers are mostly convinced monetary easing will continue as Ueda has pledged. The lingering question is whether he will get rid of or adjust the bank’s control of yields as a stop-gap measure to reduce the side effects of stimulus before a larger move later on. A third of economists see him doing that in July when the bank is widely expected to raise its price forecasts.

What Bloomberg Economics Says:

“The BOJ took guilty pleasure in the recent US banking collapses — because the resulting market tumult forced speculators to stop challenging their yield-curve control framework. That’s left Governor Ueda free to focus on trying to stoke more durable, demand-led inflation. The BOJ will likely keep the YCC framework until sometime in the second half of 2024. And any new policy will still be accommodative, probably anchoring the policy rate at zero and keeping up the bond buying.”

—Taro Kimura

Bank of England

  • Current bank rate: 5%
  • Bloomberg Economics forecast for end of 2023: 5.75%
  • Bloomberg Economics forecast for end of 2024: 5%
  • Market pricing: at least another 125 basis points in hikes to reach 6.25%, and then 50 basis points of easing are priced for the following year

A fourth month of higher-than-forecast inflation has left investors convinced that the most aggressive monetary tightening in over three decades has further to run. Money markets are betting the BOE will raise rates to 6.25% by February, their highest level since 1999.

Governor Andrew Bailey and his colleagues did nothing to push back against those expectations on June 22, when they delivered their 13th consecutive hike to take the benchmark to 5%. Bailey has even questioned whether markets are right to predict the peak in rates will be “short-lived.”

The problem is that prices are proving far “stickier” than expected, underpinned by a tight labor market and strong corporate pricing power. While headline inflation is falling as the energy shock fades, the core measure is above 7% and is expected to recede only slowly. There are growing fears that a recession may be the price of finally taming consumer prices.

What Bloomberg Economics Says:

“The BOE surprised investors and economists by delivering a 50-bps hike in June. The move was a response to a run of hotter-than-expected data and could be followed by another outsized hike in August if the inflation figures continue to surprise. Our base case is that rates peak at 5.75% in November, 50bps below the market view of terminal. Even on our more dovish rates outlook, we think the economy is headed for a recession.”

—Dan Hanson 

Bank of Canada

  • Current overnight lending rate: 4.75%
  • Bloomberg Economics forecast for end of 2023: 5%
  • Market pricing: expectations mirror the Fed, with a quarter-point hike baked in and odds of a final increase placed at one-in-two by year-end

Robust economic momentum is challenging the once widespread belief that deeply indebted households would keep the Bank of Canada from raising rates as high as its peers. Officials resumed hiking borrowing costs in June as household spending continued to rip higher, despite one of the most aggressive tightening campaigns in the central bank’s history.

With little evidence of an impending contraction, economists believe Governor Tiff Macklem has more work to do in beating back excess demand and bringing inflation to heel. Trading in overnight swap markets suggests there’s about a three-quarters chance of the bank delivering another 25 basis-point hike at its next meeting on July 12.

What Bloomberg Economics Says:

“Though core inflation has slowly moderated since mid-2022, still high growth and historically low unemployment gives the Bank of Canada room to raise policy rates by another 25 basis points and to a terminal rate of 5% by year-end. With the BoC’s willingness to surprise markets by re-starting rate rate-hikes, and key economic metrics indicating inflation risk remains skewed to the upside, we believe policy rate risk remains skewed to the upside, as well.”

—Stuart Paul


People’s Bank of China

  • Current 1-year medium-term lending rate: 2.65%
  • Bloomberg Economics forecast for end of 2023: 2.45%
  • Bloomberg Economics forecast for end of 2024: 2.35%

China’s economic recovery is losing momentum. Recent data has showed a slowdown in consumer spending, which has been a main driver of the rebound this year after the world’s second-largest economy finally shed its Covid Zero rules. Demand is weak and confidence has failed to gain much traction.

The PBOC cut rates in June for the first time in nearly a year, fueling speculation that policy is loosening up and there may be more easing on the way. Yet officials have been slow to announce any concrete stimulus package, and economists have cautioned that support will likely be moderate. Economists surveyed by Bloomberg still expect gross domestic product to expand 5.5% this year, above the government’s conservative target of about 5%. 

What Bloomberg Economics Says:

“The PBOC appears to have changed tack — it telegraphed its June rate cut in an unusually clear way. That suggests it’s signaling its intent to support the economy. We expect more cuts to rates and the reserve requirement ratio in the second half, part of a stronger push to shore up growth.”

—Chang Shu

Reserve Bank of India

  • Current RBI repurchase rate: 6.5%
  • Bloomberg Economics forecast for end of 2023: 6.5%
  • Bloomberg Economics forecast for end of 2024: 5.5%

Inflation inched closer to the mid point of the Reserve Bank of India’s 2%-6% target band but the central bank is wary of risks from uneven rains and geopolitical tensions. Its six-member monetary policy panel unanimously voted to keep the key rate unchanged for the second straight meeting in June. It also retained the policy stance on “withdrawal of accommodation,” with Governor Shaktikanta Das reiterating it was a pause and not a pivot toward rate cuts.

The RBI’s next policy review is due Aug. 10 and most economists expect it to stay on hold for the rest of the year. “Our job is only half done, having brought inflation within the target band,” Das said in minutes of last month’s meeting. “Our fight against inflation is not yet over.”

What Bloomberg Economics Says:

“The recent inflation slowdown has lifted the real policy rate at the end of May to 2.2% — far higher than the central bank’s neutral-rate estimate of 0.8%-1%. But inflation is set to reverse later this year due to a larger than expected increase in government’s support price for autumn crops. Additionally, an ongoing strong recovery and an upside inflation risk from weak monsoon rains means that the RBI is likely to wait until next year before cutting rates.”

—Abhishek Gupta

Central Bank of Brazil

  • Current Selic target rate: 13.75%
  • Bloomberg Economics forecast for end of 2023: 12%
  • Bloomberg Economics forecast for end of 2024: 9%

Brazil’s central bank has refrained from clearly signaling the beginning of a much-expected monetary easing cycle, but removed a threat to further raise rates after keeping the benchmark Selic at 13.75% for a seventh straight meeting in June. 

The language change coupled with a steady decline in inflation was enough for traders to justify bets that rate cuts will start in August, with a quarter-point reduction. Consumer prices rose 3.94% a year in May, within the central bank’s tolerance range, and even core measures stripping out volatile food and energy items are slowing down. Meanwhile, pressure for rate cuts is mounting from President Luiz Inacio Lula da Silva, business leaders and senators.

What Bloomberg Economics Says:

“Slower headline inflation and a new fiscal framework in Brazil will prompt the central bank to start unwinding the sharp policy tightening it began in 2021. We expect a gradual easing process to begin in the third quarter, with policy normalized by the end of 2024. Questions on the neutral interest rate level limit how much the Selic can fall — we see the terminal rate in the high single digits.”

—Adriana Dupita

Bank of Russia

  • Current key rate: 7.5%
  • Bloomberg Economics forecast for end of 2023: 8%
  • Bloomberg Economics forecast for end of 2024: 7.5%

As many central banks are preparing to halt monetary tightening or even pivot to rate cuts, the Bank of Russia is setting the stage for its first hike in official borrowing costs since the immediate aftermath of the invasion of Ukraine 17 months ago.

Policymakers led by Elvira Nabiullina have for months telegraphed the possibility that rates will have to rise at a time of heavy government spending on the war and as labor shortages put pressure on inflation. Their benchmark has been at 7.5% since September, the longest pause in more than seven years.

But with the economy performing better than anticipated, many analysts say a rate hike will likely be on the table already in July or September.

What Bloomberg Economics Says:

“Russia’s central bank will likely start hiking by September, pushing the policy rate to 8% at end-2023. A weaker ruble and a sharp increase in loan growth will probably push inflation to 5%-6%, up from its current on-target level of 4%. Historically, breaches of the target lasting 2-3 months tended to prompt the Bank of Russia to raise rates. We expect this pattern to hold this year.”

—Alexander Isakov

South African Reserve Bank

  • Current repo average rate: 8.25%
  • Median economist forecast for end of 2023: 8.25%
  • Median economist forecast for end of 2024: 7.5%

With inflation on track to return to the South African Reserve Bank’s 3-6% target range, its monetary policy committee will likely hold the key rate at its highest level since 2009 for the rest of the year while keeping a close eye on the rand. A sharp depreciation against the dollar could cause it to start hiking again.

Governor Lesetja Kganyago said at the MPC’s last meeting, after a 50 basis-point hike led monetary policy to become restrictive, that the panel wouldn’t relax rates until the inflation trajectory changes and moves on a forward looking basis toward the midpoint of its target range where it prefers to anchor expectations.


Banco de Mexico

  • Current overnight rate: 11.25%
  • Bloomberg Economics forecast for end of 2023: 10.75%
  • Bloomberg Economics forecast for end of 2024: 6.75%

Banco de Mexico has vowed to keep borrowing costs at a record high for a few more months and only start cutting them when it makes sure inflation is clearly slowing to target. The central bank known as Banxico maintained its benchmark rate at 11.25% on June 22, repeating that it expects to hold them at the current level for “an extended period.”

Economists, who have described the five-member board as “cautious,” don’t expect a rate cut before the fourth quarter. While Banxico has often moved in lockstep with the Fed, it’s unlikely that it would follow its northern counterpart into further hiking rates after Mexico’s annual inflation slowed to 5.18% in early June. The central bank has forecast consumer prices to rise 3.1% a year by the fourth quarter of 2024, near its target.

What Bloomberg Economics Says:

“Banxico’s rate hold in June confirmed the tightening cycle is over. Rates are the highest since 2001. Adjusted by one-year inflation expectations, they are well above the neutral real rate. We see Banxico on hold until the fourth quarter, when tight monetary conditions, smaller price changes, lower inflation expectations and more moderate domestic demand prompt it to start slowly cutting. We see the reference rate at 10.75% by the end of 2023.”

—Felipe Hernandez

Bank Indonesia

  • Current 7-day reverse repo rate: 5.75%
  • Bloomberg Economics forecast for end of 2023: 5.25%
  • Bloomberg Economics forecast for end of 2024: 4.75%

With inflation cooling faster than expected and economic conditions improving, there’s little case for Bank Indonesia to end the current status quo on rates, at least in the near term.

At 5.75%, Governor Perry Warjiyo sees the level of borrowing costs, the highest since July 2019, as appropriate enough to preserve currency stability. The rupiah, which breached the psychological level of 15,000 against the dollar last week, has more or less held on to the gains since — giving the central bank additional scope to stay put. That’s left economists pondering how long this pause will last.

What Bloomberg Economics Says:

“Bank Indonesia is likely to hold its policy rate through the third quarter. Inflation is back on target, but it’s too soon to ease. Narrowing the rate differential with the dollar would erode key support for the rupiah, especially with the Fed signaling it has more work to do. Bank Indonesia’s tightening was aimed at stabilizing the currency, which is its primary objective. Our analysis suggests monetary policy remains a drag on the rupiah.”

—Tamara Henderson

Central Bank of Turkey

  • Current 1-week repo rate: 15%
  • Bloomberg Economics forecast for end of 2023: 24%
  • Bloomberg Economics forecast for end of 2024: 20%

Under new governor Hafize Gaye Erkan, Turkey’s central bank started raising borrowing costs and pledged to gradually tighten monetary conditions until there is a significant improvement in inflation outlook. The bank’s decision to increase the policy rate in June was the first in over two years.

The decision marks a turnaround in Turkey’s economic policies, which have mostly been driven by President Recep Tayyip Erdogan’s growth-at-all-costs mantra over the past five years. Ultra-low borrowing costs boosted growth, but led to a steep decline in the currency and fueled consumer price inflation, which stands at nearly eight times the official target of 5%.

What Bloomberg Economics Says:

“The CBRT has kicked off its much needed policy pivot with a 650-bp hike — exactly in line with our call – which we see as an initial step in a series of credibility building policy changes. We expect the bank to gradually unwind its complex set of regulations and practices alongside a tightening cycle lifting the key policy rate to 24% by year-end from the current 15%.”

—Selva Bahar Baziki

Central Bank of Nigeria

  • Current central bank rate: 18.5%
  • Median economist forecast for end of 2023: 18.5%

Having lifted its benchmark rate by seven percentage points since May 2022, the Central Bank of Nigeria is poised to continue tightening at its next MPC meeting in July and possibly for the rest of the year.

Inflation is running at its fastest pace in almost 18 years and is expected to remain elevated because of the loosening of foreign-exchange controls that have led to a sharp depreciation in the naira, an increase in electricity tariffs and the scrapping of a decades-long gasoline subsidy that’s caused pump prices to almost triple.


Bank of Korea

  • Current base rate: 3.5%
  • Bloomberg Economics forecast for end of 2023: 3.5%
  • Bloomberg Economics forecast for end of 2024: 2.75%

The Bank of Korea is seen leaving rates unchanged this quarter as it monitors the economy, stickiness in prices and moves by the Fed.

Governor Rhee Chang-yong has tried to brush off expectations that the central bank will start easing policy to help a slowing economy weighed down by a slump in exports, particularly tech products. He says a rate cut can only be entertained once price pressures showed a clear easing trend. 

That still appears a ways off. While consumer prices have continued to ease, core inflation remains more than double the central bank’s 2% target. For now a hawkish hold seems the far more likely outcome, especially if there are more potentially currency buffeting rate hikes to come from the Fed.

What Bloomberg Economics Says:

“We expect the BOK to hold rates steady for the rest of 2023. Growth is weak because a sputtering recovery in China, the country’s biggest trading partner, is eroding exports and investment. But headline CPI inflation is still above 3% and core inflation remains sticky. May’s strong jobs data give the BOK more reason to stay. Inflation will probably stay close to 3% in 2H23 and we don’t see it stabilizing to the 2% target until 2H24.”

—Hyosung Kwon

Reserve Bank of Australia

  • Current cash rate target: 4.1%
  • Bloomberg Economics forecast for end of 2023: 4.35%
  • Bloomberg Economics forecast for end of 2024: 3.25%

Australia’s central bank hit pause in its 15-month tightening campaign for a second time, while making clear its finger remains firmly on the interest-rate trigger.

The Reserve Bank opted to stand pat on July 4 to wait for key quarterly inflation data later this month, as well as updated staff forecasts before deciding on a resumption of rate rises.

Core inflation is running above 6%, more than double the top of the RBA’s 2-3% target, and there remain upside risks. These include services prices, a tight labor market and a housing rebound.

But the RBA needs to judge how much tightening Australia’s highly-geared households can absorb, particularly as many borrowers are about to shift from ultra-low fixed mortgages to floating rates, as it aims for a soft landing.

What Bloomberg Economics Says: 

“The RBA’s July pause is more of a skip than a hold. Growth has cooled and inflation is slowing rapidly, but a tight labor market is likely to keep the central bank on edge – and drive a final rate hike in August once quarterly CPI data is in hand and forecasts are updated. Rapid passthrough of rate hikes will hit consumer spending hard through 2023, and may mean the RBA has less room to hold rates at their peak.” 

—James McIntyre

Central Bank of Argentina

  • Current rate floor: 97%
  • Bloomberg Economics forecast for end of 2023: 97%
  • Bloomberg Economics forecast for end of 2024: 70%

Argentina’s central bank has tightened monetary policy significantly in recent months to make up for annual inflation galloping over 114% a year. The benchmark Leliq rate rose from 75% in mid-March to 97% in May as the monetary authority struggles to tame price increases. 

Central bank officials have also tightened import controls in a bid to protect dwindling net international reserves that are in negative territory, meaning its liabilities are greater than liquid cash reserves.

What Bloomberg Economics Says:

“Argentina’s central bank will likely stay on hold until the October presidential election – unless a plunge in reserves or sharp devaluation in the unofficial dollar-blue exchange rate forces a move on interest rates or the peso. A policy pivot looks increasingly likely after the next presidential term begins on Dec. 10. A mix of fiscal adjustment and currency realignment could allow the central bank to cut rates next year, especially if the government keeps capital controls in place, as we expect.”

—Adriana Dupita


Swiss National Bank

  • Current policy rate: 1.75%
  • Economist forecast for end of 2023: 2%

The Swiss National Bank dialed down tightening in June, with the smallest increase since its rate-hiking cycle started a year earlier. But officials are strongly signaling further action to come: President Thomas Jordan said another move is “most likely.”

While Switzerland has one of the lowest inflation rates in the OECD — it peaked at just 3.5% — policymakers are worried that price pressures may still become entrenched.

Sveriges Riksbank

  • Current repo rate: 3.75%
  • Bloomberg Economics forecast for end of 2023: 4%
  • Bloomberg Economics forecast for end of 2024: 3%

Sweden’s central bank is in a tough spot after krona fell to its lowest level on record against the euro, pushing prices on imported goods higher. 

In response, the Riksbank has pledged to step up the pace of bond sales and said it expects to take its benchmark rate higher than previously anticipated. At the same time, officials must be mindful of troubles brewing in the country’s real estate sector, with landlords struggling with higher borrowing costs possibly having to resort to fire sales. 

For now, the message from Riksbank Governor Erik Thedeen is that companies that have taken on too much debt must deal with their own problems, and that the central bank will do whatever it takes to bring inflation back to its 2% target.

What Bloomberg Economics Says:

“Sweden’s sticky core inflation and a weakening currency, alongside increasingly hawkish leanings among other major central banks, will keep the Riksbank on a tightening path. We expect the central bank to lift its policy rate by 25 bps to 4% in September and see no rate cuts before 2H24.”

—Selva Bahar Baziki

Norges Bank

  • Current deposit rate: 3.75%
  • Central bank forecast for end of 2023: 4.2%
  • Central bank forecast for end of 2024: 4%

Norway’s central bank has already raised its key rate by 100 basis points this year and will probably hike by another quarter point in August to fight record core inflation and counteract the weak krone. That will likely be followed by a similar hike in September, taking the peak for this tightening cycle to 4.25%, according to policymakers.

Recent data show households and companies in the fossil-fuel-rich nation remain relatively resilient to higher costs as unemployment stays near long-term lows, housing prices near new peaks and economic activity improves. The balancing act is made more difficult for Governor Ida Wolden Bache by the krone remaining one of the worst decliners in the G-10 space of major currencies this year due mainly to faster rate hikes by the Fed and the ECB, lower oil prices and higher global risk aversion.

Reserve Bank of New Zealand

  • Current cash rate: 5.5%
  • Bloomberg Economics forecast for end of 2023: 5.25%
  • Bloomberg Economics forecast for end of 2024: 3.75%

The RBNZ surprised watchers in May when, after delivering the expected 25 basis-point rate increase, it said its tightening cycle was over. Governor Adrian Orr and his Monetary Policy Committee have been among the most aggressive post-pandemic hikers, lifting the Official Cash Rate by 5.25 percentage points to 5.5% in little more than a year and a half. Now they appear confident they have done enough to return inflation to target over the coming two years.

That remains to be seen, with some local economists still picking the RBNZ will need to hike once more to get the job done, especially with the falling housing market showing signs of finding a floor. But the economy entered a mild recession much sooner than the central bank expected and soaring mortgage rates are taking their toll on consumer spending, fueling bets that rate cuts could begin as soon as the first half of next year.

What Bloomberg Economics Says:

“The RBNZ is done raising rates. The full effects of 525 basis points of tightening since October 2021 is beginning to emerge, as mortgages reset and repayments rise. Bloomberg Economics sees the RBNZ’s tough inflation stance easing as the economy contracts and unemployment rises at a faster pace than the central bank projects. Rate cuts are likely to arrive sooner than anticipated, in 4Q23, as the focus switches from fighting inflation to reviving demand.”

—James McIntyre

National Bank of Poland

  • Current cash rate: 6.75%
  • Bloomberg Economics forecast for end of 2023: 6.5%
  • Bloomberg Economics forecast for end of 2024: 5%

Poland’s central bank has started to lay the groundwork for a possible rate cut later in the year after the surge in consumer prices began to ease and the economy contracted in the first quarter. Inflation slowed for a third month in May to 13%. Governor Adam Glapinski hopes it will return into single digits in September. 

Yet policymakers need to be certain the trend will continue before they start cutting rates, he said. The central bank is still far from reaching its inflation goal of 2.5%. Meanwhile, lavish spending promises before a parliamentary election in the fall are likely to feed into price pressures in the economy, where unemployment is among the lowest in the European Union.

What Bloomberg Economics Says:

“Poland’s central bank will likely keep the policy rate at 6.75% into the 3Q23, and may cut it to 6.5% in 4Q23. The reason? Slowing inflation. Price gains are heading to single digits by September from a February peak of 18.4%. The cost of volatile items such as food and energy is set to moderate globally, while slower credit growth and a stronger zloty are helping to bring core inflation down.”

—Alexander Isakov

Czech National Bank

  • Current cash rate: 7%
  • Median economist forecast for end of 2023: 6.5%
  • Median economist forecast for end of 2024: 4%

The Czech central bank has stepped up efforts to temper bets on rate cuts, signaling that borrowing costs will decline later than in the third quarter that’s implied by its own forecast. Money-market prices indicate about 100 basis points of cuts this year, but Governor Ales Michl said in June that “market expectations won’t materialize.”

While the highest rates since 1999 and a strong koruna are taming home-grown price pressures, inflation is still at “unacceptable levels,” Michl said. The bank sees inflation easing below 10% this summer, from 11.1% in May, and reaching the 2% target by around the middle of next year.

–With assistance from Scott Johnson (Economist), Paul Abelsky, Onur Ant, Andrew Atkinson, Maya Averbuch, Vrishti Beniwal, Bastian Benrath, Matthew Brockett, Maria Eloisa Capurro, Jeremy Diamond, Jill Disis, Toru Fujioka, Patrick Gillespie, Michael Heath, Erik Hertzberg, Harumi Ichikura, Hooyeon Kim, Peter Laca, Andrew Langley, Steve Matthews, Ruth Olurounbi, Piotr Skolimowski, James Regan, Niclas Rolander, Karthikeyan Sundaram, Ott Ummelas, Monique Vanek, Alexander Weber, Sonja Wind, James Hirai and Sarina Yoo.

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