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RBA’s Bullock: Debated 25 vs 50bps cut debated; trade risks tilt toward disinflation

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    ActionForex
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    Following RBA’s decision to cut the cash rate by 25bps to 3.85%, Governor Michele Bullock revealed in the post-meeting press conference that the Board briefly considered holding rates but quickly moved to debate between 25 and 50 basis point reductions.

    Ultimately, the more measured 25bps cut was preferred, given that inflation is within target and unemployment remains resilient. Bullock emphasized that while easing was justified, “it doesn’t rule out that we might need to take action in the future.”

    Bullock also noted that the Board views recent global trade developments as broadly “disinflationary” for Australia. However, she cautioned that risks remain tilted both ways.

    “There is a risk to inflation on the upside, trade policies could lead to supply chain issues, which could raise prices for some imports, much as we saw during the pandemic,” she emphasized.

    RBA cuts rates to 3.85%, lowers 2025 growth and inflation forecasts

      By
      ActionForex
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      RBA delivered a widely expected 25 bps rate cut, lowering the cash rate to 3.85%. In its statement, RBA said the risks to inflation had become “more balanced,” with headline inflation now within the target range and upside pressures “appear to have diminished” amid deteriorating global economic conditions.

      Still, the central bank remains cautious, citing significant uncertainty around both demand and supply dynamics, as well as the evolving impact of global trade tensions and geopolitical developments.

      The Board acknowledged a “severe downside scenario” and emphasized that monetary policy is “well placed” to respond decisively if global shocks materially affect Australia’s outlook. RBA flagged the unpredictability of global tariff policies and noted that households and businesses may hold back on spending amid heightened uncertainty. These concerns have contributed to a weaker outlook across growth, employment, and inflation.

      In its revised forecasts, RBA downgraded GDP growth for 2025 to 1.9% (from 2.1%) and for 2026 to 2.2% (from 2.3%). End-2025 headline CPI was revised down to 3.0% from 3.7%, with end-2026 projection lifted from 2.8% to 2.9%. Trimmed mean forecasts for the end-2025 and end 2026 were both cut slightly from 2.7% to 2.6%.

      Full RBA statement and SoMP.

      China cuts loan prime rates for first time in seven months

        By
        ActionForex
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        China’s central bank lowered its key lending benchmarks for the first time since October, delivering a long-anticipated move to support the economy.

        PBoC lowered the one-year loan prime rate by 10 bps to 3.0%. The five-year LPR, a key reference for mortgages, was also trimmed by 10 bps to 3.5%.

        The October 2025 easing was more aggressive at 25 basis points, but today’s cuts still mark a meaningful step in the ongoing monetary support cycle.

        The move comes as part of a broader policy package unveiled by PBOC Governor Pan Gongsheng and top financial regulators ahead of high-level trade talks in Geneva that have since led to a temporary truce between China and the US on tariffs.

        BoE’s Dhingra: Vote for bigger rate cut a signal of economic direction

          By
          ActionForex
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          BoE MPC member Swati Dhingra explained her decision to vote for a larger 50bps rate cut at the May 8 meeting as a deliberate signal about the UK’s economic outlook.

          Speaking in an FT interview, Dhingra said she wanted to send a “more categorical statement about where I think the economy is headed,” noting that using such a larger move sparingly increases its impact on market expectations.

          Her vote, along with Alan Taylor’s, diverged from the majority who supported a more measured 25bps cut.

          SNB’s Schlegel: Inflation outlook unclear, negative rates remain on the table

            By
            ActionForex
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            SNB Chair Martin Schlegel warned that the outlook for Swiss inflation remains highly uncertain and reiterated that the central bank could not rule out a return to negative interest rates.

            Speaking at an event overnight, Schlegel said while such rates were an extraordinary measure, they had previously achieved their intended effect when used between 2014 and 2022.

            “The uncertainty is currently enormous,” Schlegel said, citing volatility in both USD/CHF and EUR/CHF, adding that “investors are seeking a safe haven in stormy times,” which has put upward pressure on the Swiss franc.

            Separately, Schlegel addressed concerns about global asset shifts, emphasizing that US treasuries remain foundational to global markets despite rising uncertainty. “There’s no current or foreseeable alternative to U.S. treasuries,” he said, citing their liquidity and dominance.

            Fed’s Williams: Policy well positioned, Dollar concerns not yet materializing

              By
              ActionForex
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              New York Fed President John Williams noted that while the U.S. economy is currently performing well, rising uncertainty and shifting government policies warrant a patient approach on monetary policy.

              He said monetary policy remains “slightly restrictive” and is “well positioned” to handle future developments.

              “It’s going to take some time to get a clear view,” Williams said, emphasizing the Fed’s ability to “take our time” before making further moves.

              Addressing concerns about the stability of Dollar assets, Williams acknowledged there are “rumors or concerns” stemming from recent fiscal and policy shifts. However, he downplayed immediate risks, noting that there have been no “major changes” in foreign inflows into the Treasury market.

              Despite recent volatility in yields, he described bond markets as remaining “mostly range-bound.”.

              Fed’s Bostic leans toward one rut in 2025 as inflation expectations turn concerning

                By
                ActionForex
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                Atlanta Fed President Raphael Bostic said on CNBC today that he currently favors just one interest rate cut this year, citing persistent inflation pressures and growing concern over shifting inflation expectations.

                “I worry a lot about the inflation side,” Bostic said, noting that recent data shows expectations are beginning to drift upward again “in a troublesome way”, which “will make our job harder.”

                Eurozone CPI finalized at 2.2% in April, core at 2.7%

                  By
                  ActionForex
                  -

                  Eurozone headline CPI was finalized at 2.2% yoy in April. CPI core, which excludes energy, food, alcohol, and tobacco, accelerated, to 2.7%, up from 2.4% previously.

                  Services remained the primary driver of inflation, contributing 1.80 percentage points to the overall figure, followed by food, alcohol and tobacco at 0.57 pp. Energy continued to exert a dampening effect, subtracting -0.35 pp.

                  At the EU level, annual inflation was slightly higher at 2.4% yoy. Inflation disparities remained wide across the bloc, with France posting the lowest annual rate at 0.9% and Romania the highest at 4.9%.

                  Full Eurozone CPI final release here.

                  BoJ’s Uchida notes strain on consumers as food and import costs climb

                    By
                    ActionForex
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                    BoJ Deputy Governor Shinichi Uchida noted in parliamentary remarks that recent inflation has been driven primarily by higher import and food costs, particularly staples like rice.

                    He acknowledged the burden on households, saying the price increases are “having a negative impact on people’s livelihood and consumption”. The bank remains prepared to continue raising rates if its current forecast holds.

                    However, Uchida stressed the “extremely high uncertainty” around global trade policies and their economic consequences. Given these risks, he emphasized that the BoJ would assess whether the economy and inflation align with projections before taking further steps.

                    China’s retail sales growth slows to 5.1% in April, misses expectations

                      By
                      ActionForex
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                      China’s economic data for April revealed a patchy recovery, with retail sales rising by 5.1% yoy, falling short of the 6.0% yoy forecast and slowing from March’s 5.9% yoy. Stripping out automobiles, consumer goods sales rose 5.6% yoy.

                      National Bureau of Statistics spokesperson Fu Linghui remained upbeat, saying that consumption momentum continues to build and will remain a key driver of economic growth.

                      On the production side, industrial output grew by 6.1% yoy, exceeding expectations of 5.7% yoy but decelerating from March’s robust 7.7% expansion. Meanwhile, fixed asset investment came in at 4.0% year-to-date, below the expected 4.4%.

                      NZ BNZ services slips to 48.5, sector remains under pressure

                        By
                        ActionForex
                        -

                        New Zealand’s services sector showed further signs of strain in April, with the BusinessNZ Performance of Services Index dipping from 48.9 to 48.5, well below the long-term average of 53.0.

                        Key components of the survey highlighted persistent weakness: activity/sales was stagnant at 47.3. Employment slipped back into contraction territory at 48.2. New orders showed only marginal improvement, rising from 50.8 to 50.9.

                        BNZ Senior Economist Doug Steel noted the PSI paints a more sobering picture than broader recovery narratives might suggest, highlighting that New Zealand’s services sector is underperforming relative to key global peers.

                        Full NZ BNZ PSI release here.

                        ECB’s Lagarde attributes Euro strength to waning confidence in US policy amid uncertainty

                          By
                          ActionForex
                          -

                          ECB President Christine Lagarde has described the Euro’s recent appreciation against Dollar as “counter-intuitive,” but ultimately a reflection of growing global unease over US political and economic direction.

                          In an interview with La Tribune Dimanche, Lagarde said that parts of the financial markets appear to be “losing confidence” in the US, due to economic and financial chaos during the first 100 days of President Donald Trump’s term.

                          By contrast, Lagarde highlighted Europe’s comparative stability, both economic and institutional, as a key driver behind the Euro’s unexpected strength.

                          “Uncertainty is a constant [in the US],” she noted, while Europe is being recognized as “a stable economic and political region with a solid currency and an independent central bank.”

                          That divergence in perceived reliability, she argues, has led markets to favor the Euro even in a climate where risk aversion would normally boost Dollar.

                          Full interview of ECB’s Lagarde here.

                          US UoM consumer sentiment falls to 50.8, inflation expectations surges to 7.3%

                            By
                            ActionForex
                            -

                            US consumer sentiment deteriorated again in early May, with University of Michigan’s index falling from 52.2 to 50.8, its lowest level since mid-2022 and well below expectations of 53.0.

                            The decline was broad-based, with Current Economic Conditions Index slipping from 59.8 to 57.6 and Expectations Index easing from 47.3 to 46.5. Since the start of 2025, overall sentiment has plunged nearly 30%.

                            The report also highlighted a surge in inflation fears, with year-ahead inflation expectations jumping from 6.5% to 7.3%.

                            According to the survey, nearly three-quarters of respondents spontaneously mentioned tariffs, a notable increase from April’s 60%.

                            Interviews for the survey were conducted between April 22 and May 13, capturing only limited responses after the May 12 announcement of a partial tariff pause on Chinese goods. The final May release may reveal whether that move tempers consumer concerns.

                            Full Michigan consumer sentiment release here.

                            Fed’s Bostic sees only one rate cut in 2025, as uncertainty unlikely to resolve quickly

                              By
                              ActionForex
                              -

                              Atlanta Fed President Raphael Bostic reiterated his expectation for just one interest rate cut this year, citing persistent uncertainty surrounding global trade policy “is unlikely to resolve itself quickly.”

                              Speaking on Bloomberg’s Odd Lots podcast, Bostic pointed to the 90-day delay of reciprocal tariffs and the tentative nature of the recent US-China de-escalation, warning that the final outcomes of trade negotiations remain unclear.

                              Bostic emphasized that tariffs are expected to exert upward pressure on inflation, a view supported by the Atlanta Fed’s own analysis and echoed by many economists.

                              As a result, monetary policy may need to lean against those inflationary forces, limiting how far the Fed can ease. “Our policy is going to have to anticipate — and to some extent — potentially push against those inflationary forces,” he said.

                              EU exports jump 15.% yoy in March on strong US shipments

                                By
                                ActionForex
                                -

                                Eurozone trade data showed a strong performance in March, with exports rising 13.7% yoy to EUR 279.8B and imports up 8.8% yoy to EUR 243.0B, resulting in a solid trade surplus of EUR 36.8B. Intra-eurozone trade also rose 1.7% yoy to EUR 226.0B, indicating modest growth in internal demand.

                                For the broader European Union, the trade picture was similarly positive. Exports jumped 15.2% yoy to EUR 254.8B, while imports increased by 10.4% yoy to EUR 219.5B, yielding a EUR 35.3B surplus.

                                The standout development came from transatlantic trade: EU exports to the United States surged 59.5% yoy to EUR 71.4B, far outpacing the 15.8% yoy rise in imports from the U.S.

                                Meanwhile, trade with the UK also showed moderate growth, with exports rising 4.8% yoy and imports increasing 5.4% yoy. In contrast, trade with China as a weak spot. EU exports to China fell sharply by -10.1% yoy to EUR 17.9B, while imports surged 15.8% yoy to EUR 48.6B.

                                Full Eurozone and EU trade balance release here.

                                ECB’s Kazaks: Interest rates near terminal level of easing cycle

                                  By
                                  ActionForex
                                  -

                                  Latvian ECB Governing Council member Martins Kazaks indicated market pricing of a 25bps cut at the June 5 meeting is “relatively appropriate”.

                                  Nevertheless, speaking to CNBC, Kazaks added that inflation developments are “by and large within the baseline scenario”. Thus, ECB is “relatively close to the terminal rate” of its easing cycle.

                                  Kazaks’ comments argue that ECB may enter a phase of pause after the June rate cut.

                                  Meanwhile, French Governing Council member Francois Villeroy de Galhau, in an interview with a regional French newspapers, acknowledged the risk of a trade war but dismissed the notion that central banks are currently engaged in a currency war.

                                  Villeroy defined a currency war as using interest rates competitively to gain economic advantage. Instead, he said recent currency movements are more reflective of “revisions to economic forecasts.”

                                   

                                  BoJ’s Nakamura urges caution on rate hikes as economy faces mounting downward pressure

                                    By
                                    ActionForex
                                    -

                                    BoJ board member Toyoaki Nakamura, known for his dovish stance, warned that Japan’s economy is under “mounting downward pressure” and cautioned against “rushing” to interest rate hikes.

                                    Speaking today, Nakamura highlighted the risks of tightening policy while growth slows, noting that higher rates could “curb consumption and investment with a lag”.

                                    Nakamura also pointed to growing uncertainty stemming from US tariff policy, which he said is already causing Japanese firms to delay or scale back capital spending plans.

                                    He warned that escalating trade tensions could spark a “vicious cycle of lower demand and prices,” undermining both growth and inflation.

                                    RBNZ inflation expectations rise to 2.41%, further easing seen ahead

                                      By
                                      ActionForex
                                      -

                                      RBNZ’s latest Survey of Expectations for May revealed a notable uptick in inflation forecasts across all time horizons.

                                      One-year-ahead inflation expectations climbed from 2.15% to 2.41%, while two-year expectations rose from 2.06% to 2.29%. Even long-term projections edged higher, with five- and ten-year-ahead expectations increasing to 2.18% and 2.15% respectively.

                                      Despite the upward revisions in inflation outlook, expectations for monetary policy point clearly toward easing.

                                      With the Official Cash Rate currently at 3.50%, most respondents anticipate a 25 bps cut by the end of Q2. Looking further ahead, the one-year-ahead OCR expectation also declined from 3.23% to 2.91%.

                                      Full RBNZ Survey of Expectations here.

                                      Japan’s GDP contracts -0.2% qoq in Q1, export drag offsets capex gains

                                        By
                                        ActionForex
                                        -

                                        Japan’s economy shrank by -0.2% qoq in Q1, marking its first contraction in a year and falling short of the -0.1% qoq consensus. On an annualized basis, GDP contracted by -0.7%, a sharp disappointment compared to expectations for -0.2%.

                                        The weakness was largely driven by external demand, which subtracted -0.8 percentage points from growth as exports declined -0.6% qoq while imports jumped 2.9% qoq.

                                        Domestically, the picture was mixed. Private consumption, comprising more than half of Japan’s output, was flat on the quarter. However, capital expenditure provided some support, rising by a solid 1.4% qoq.

                                        Meanwhile, inflation pressures showed no sign of easing, with the GDP deflator accelerating from 2.9% yoy to 3.3% yoy, above expectations of 3.2% yoy.

                                        NZ BNZ manufacturing rises to 53.9, recovery gains ground

                                          By
                                          ActionForex
                                          -

                                          New Zealand’s BusinessNZ Performance of Manufacturing Index edged up from 53.2 to 53.9 in April. The gain was driven by improvements in employment and new orders, up to 55.0 and 51.4 respectively, with employment reaching its highest level since July 2021. However, production eased slightly to 53.8.

                                          BNZ Senior Economist Doug Steel noted that while the sector isn’t booming, the recovery is clear, with the PMI rebounding sharply from a low of 41.4 last June.

                                          Still, he cautioned, “there remain questions around how sustainable it is given uncertainty stemming from offshore”.

                                          Full NZ BNZ PMI release here.

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