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MNI BOE WATCH: BOE Holds 6-3, Division On 2nd-Round Effects
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The Bank of England held rates at 3.75% for the fifth consecutive meeting on Thursday, with persistent divisions over the likelihood of second-round effects despite a narrowing in the vote split to six-three.
The Policy Summary noted that "CPI inflation has fallen to 2.6% since the previous meeting, faster than the Bank had expected, although it is expected to rise later this year as the effects of higher energy prices continue to pass through," while Governor Andrew Bailey emphasised the continued uncertainty of the outlook at the press conference. (see MNI BOE WATCH: Hold Seen As Central Projection In Spotlight)
"There have continued to be clear signs of underlying disinflation in recent data," the statement said, adding that "loose labour market conditions, and higher interest rates faced by households and businesses than prior to the conflict, will also act to reduce inflation over time."
The Monetary Policy Report reintroduced a central scenario, which had been omitted from April’s edition, but BOE staff noted that it did not reflect agreement among the committee of the likeliest path forward, but was rather one that all members could agree to as a likely baseline. That baseline sees inflation averaging 3.0% this year, 2.7% in 2027 and 1.8% - below the 2% target - in 2028.
Late on Thursday, financial markets continue to price a 25-basis-point hike by year end, with another in Q1 2027.
SECOND-ROUND EFFECTS
The Monetary Policy Report dedicated two boxes to the question of second-round effects, concluding that "although it is reassuring to some extent that early indicators of second-round effects are not signalling material effects, the overall assessment is necessarily tentative as second-round effects often emerge with a lag."
This lag was highlighted by the minority voting for a hike, with previous dissenters Huw Pill and Megan Greene now joined by Catherine Mann who said she changed her vote because of "the collapse of the U.S.-Iran Memorandum of Understanding."
The three believed a proactive hike would insure against second-round effects, referencing "research [finding] that setting policy as if there were stronger second-round effects and course correcting if needed, would prove to be less costly than vice versa." (See MNI INTERVIEW: UK Consumer Enjoys July 'Burnham Bounce' - GfK)
This argument did not convince the other six members. Bailey said he believed the "jury is out" on the strength of second-round effects, but "we should take something from the fact that we've seen weaker pass through in recent times."
Deputy Governor Clare Lombardelli said her vote to hold "wasn't a close judgement," with her individual paragraph asserting that policy is restrictive and "provides sensible risk management given the inflationary impulse from higher energy prices."
Deputy Governor Sarah Breeden said she would "continue to focus on how second-round effects are likely to evolve," but "it remains early days", while Deputy Governor Ramsden saw two-way rate risk dependent on developments. Swati Dhingra said that a hike "would be disproportionate as, unlike 2022, the starting point for this shock is much softer and the policy stance is more restrictive." Fellow dove Alan Taylor said his most likely outcome sits between the baseline and milder scenario, giving the Bank scope to hold policy now before resuming cuts at a later date.
QUANTITATIVE TIGHTENING
The global outlook could yet change further before the Bank announces its next monetary policy decision on Sept 17, when it will also make its next decision over the future pace of quantitative tightening. The MPR included a box claiming that 20-30 basis points of the increase in 10-year gilt yields since 2022 have resulted from the policy.
"Given the overall increase in the term premium for 10-year gilt yields since February 2022, this suggests QT has driven between a tenth and a sixth of the total," it said, concluding that "QT auctions have had little impact on market functioning."
At the press conference, Ramsden called this "a very small fraction ... entirely consistent with our principles that Bank Rate is our primary tool [for monetary policy]."
Bailey refused to be drawn on the QT decision, though he noted that market conditions always form an important part of the MPC’s judgement on the matter. (See MNI INTERVIEW: Gilt Spikes Make Case To Slow QT - NIESR Head)
Jul-30 15:09
China's pork prices, a key component of the country's consumer price index, are expected to recover gradually from the multi-year lows seen in the first half as supply contracts and holiday demand improves, a leading industry expert told MNI, suggesting pork's drag on headline inflation should ease in the second half.
"Prices are expected to see a moderate recovery in the second half of the year," said Zhu Zengyong, chief pork industry analyst at the Chinese Academy of Agricultural Sciences, noting ample supply and weak end-user demand will limit the scope for any sharp increase. The proportion of loss-making producers is expected to decline in the fourth quarter, Zhu said, with live hog prices potentially reaching the sector's average production cost of about CNY13 per kilogram, broadly the break-even level and up from the CNY10.5/kg recorded at the end of July.
Based on MNI calculations using Mysteel data, the expected recovery would imply a narrower year-on-year decline in hog prices in the second half of this year than H1, when prices averaged about CNY2.5-5.0/kg below levels a year earlier. Mysteel data showed average prices of CNY13.7/kg in Q3 and CNY11.5/kg in Q4 2025.
Zhu’s assessment is based on the continued reduction in breeding sow capacity, which should gradually reduce the number of hogs brought to market in the second half.
Demand is also expected to improve as processors and retailers build inventories ahead of the Mid-Autumn Festival and National Day holidays. The fourth quarter is traditionally the peak season for meat consumption, supporting a moderate rise in pork prices, Zhu said. However, he cautioned that the recovery will remain constrained by elevated frozen pork inventories accumulated during the first half. As these stocks are released into the market in Q4, they are likely to weigh on prices and limit further upside.
China’s Consumer Price Index increased by 1.0% y/y in June, with pork prices down -15.9% y/y in the month and -13.4% during H1, data from the National Bureau of Statistics showed. Zhu earlier this year anticipated pork prices would bottom out mid-year. (See MNI INTERVIEW: China's Pork Prices To Slow Q1, Recover In Q3)
LOW PRICES
The prolonged market downturn in the first half pushed live hog prices to an eight-year low of CNY8.66/kg in mid-April.
Zhu attributed the extended period of weak prices to rapid gains in production efficiency, falling costs and greater industry resilience as China's pork sector became increasingly industrialised and consolidated. Large producers retain significant financing and cost advantages, enabling them to maintain output despite weak prices, he said.
At the same time, productivity per sow, commonly measured by pigs per sow per year, has improved significantly. As a result, the same breeding sow inventory can produce more market-ready hogs, increasing effective supply even as farms reduce nominal breeding capacity.
On the demand side, structural changes have continued to weigh on pork consumption, Zhu said. China's shrinking and ageing population, together with the growing popularity of healthier diets, has contributed to a steady decline in per-capita pork consumption. Poultry, beef and mutton have also become increasingly important substitutes, further limiting demand growth.
Consumer prices are likely to continue increasing gradually and could peak at around 1.6% in Q3, economists recently told MNI. (See MNI EM: China's Producer Prices To Peak In Q3, Widening CPI Gap)
Jul-30 06:10
The Reserve Bank of Australia Board is likely to leave the cash rate unchanged at 4.35% in August following lower-than-expected underlying inflation in the second quarter, though a lack of guidance is making it difficult for markets to gauge policymakers' appetite for further tightening, former RBA chief economist John Simon told MNI.
"In light of today's CPI, I can't see them moving off the back of that," said Simon, who headed the RBA's economic research department from 2014 to 2024. "But if you look at the tradables and non-tradables split, non-tradable inflation is still poking up."
CPI rose 0.6% q/q in Q2, below the 0.7% consensus and slowing from 1.4% in Q1, while the trimmed mean increased 0.8% q/q, also below expectations and unchanged from the previous quarter.
Simon argued persistent domestic inflation pressures mean monetary policy is not yet sufficiently restrictive, reiterating his stance that the cash rate will likely need to rise to 4.60% by late 2026 or early 2027. (See MNI INTERVIEW: Former RBA Research Chief Warns Of Higher Rates) "Services is poking up. The domestic factors that have been the problem in Australia, just obscured by the international noise, remain and don't seem to be going away," he said. "I don't think [the RBA] is firmly on top of inflation."
He noted that June's 4.4% unemployment rate remains below the RBA's estimate of the non-accelerating inflation rate of unemployment, indicating capacity pressures persist despite monthly volatility in employment.
"When I look at wages and services inflation, it's all a consistent picture of excess domestic demand," he continued.
COMMUNICATION GAP
Simon said markets have progressively priced out the prospect of another rate increase, but attributed much of the volatility in expectations to a lack of guidance from the RBA rather than a material shift in the inflation outlook.
"My guess would be we'll probably see it sometime next year rather than at the end of this year, simply because they move slowly," he said. "I still think monetary policy has some work to do."
Markets see little chance of a rate hike at the Aug 11 meeting and have steadily pared expectations for an additional increase this year.
Simon acknowledged that his own forecasts have often anticipated tightening too early, but maintained that current policy is only marginally restrictive and should eventually require another increase if domestic inflation fails to ease further.
Simon said the RBA's new governance structure has reduced, rather than improved, transparency following the central bank review. "The review was meant to produce more discussion about the risks and strategy," he said. "Instead, we've got less information than we had before ... We don't actually have the information to understand what they're thinking."
Governor Michele Bullock's address this week was simple and failed to cover fresh ground, he added. "Yes, supply shocks make it difficult, but you need to tell us what's your strategy for dealing with them, rather than saying it's difficult," he noted. "And that's a gap in all their communication. That it's basically 'trust us.' Monetary policy doesn't work like that, particularly with a track record like the RBA’s."
Jul-30 02:15
Long bond rates rose Wednesday after Federal Reserve Chairman Kevin Warsh welcomed materially tighter financial conditions in the absence of Fed action and equivocated on whether PCE inflation would remain the Fed's official target after an external review.
Three hawkish dissents to the July FOMC decision to maintain benchmark interest rates at 3.5%-3.75% also signaled a committee prepared to raise interest rates later this year should inflation remain elevated. Traders had priced a one-in-three chance of a hike Wednesday, making this the most uncertainty Fed meeting in years. (See MNI INTERVIEW: Fed To Consider Hike in Sept - Lockhart)
At his post-meeting press conference, Warsh counseled patience and repeatedly reassured reporters that this FOMC is eager to deliver on Congress's remit and reform how the Fed conducts policy.
He hailed the recent jump in nominal and real yields -- without any policy shift and minimal forward guidance from the Fed -- as offering a positive signal that the FOMC is on the road to restoring price stability after five years of above-target inflation.
"Prices reacted in real time to incoming information and the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee, and market prices will continue to respond in the direction and magnitude they see fit. This is, in my view, a change for the better, and we're just getting started," he said.
A noncommittal comment on the Fed's official yardstick to measure inflation added to the rise in long term yields and fall in the dollar and stocks.
Asked which measure he uses to assess inflation, Warsh cited the official PCE inflation gauge but added: "Who knows come after next January what we might say about strategy? I suspect the task forces might have something to add." To achieve 2% inflation, he said, "I'm looking at a broader set of inflation data than PCE." (See MNI POLICY: Warsh Task Forces Will Need To Woo FOMC Skeptics)
ANCHORING EXPECTATIONS
As expected, Warsh refrained from tipping his hand on rate hikes, saying it's only one part of the toolbox. Reestablishing the inflation target at 2% is another priority, he said.
"If inflation continues to be elevated through the forecast period, interest rates could well be part of that solution, but I wouldn't say it's in isolation," he said.
Financial markets, households and businesses may have had the "misimpression" that the Fed was tolerant of a somewhat higher inflation target, he said. So another tool to achieve price stability "is to ensure that expectations are centered around the right number and I think we made some progress on that."
The FOMC has been focused on trying to understand and identify underlying inflation dynamics amid shocks, including whether the AI-related capex boom that's driving up prices of memory and logic chips indicates a broader inflationary dynamic, Warsh said.
He added the timing and magnitude of supply-side effects of the AI boom remains hard to predict.
"We take these shocks seriously. There have been a series of them that have been hitting this economy. We're not looking through them and saying, oh they don't matter, but we're trying to understand to what extent are these shocks broadening in their effects, broadening in their impact on prices that are quite far removed from it," he said.
Jul-29 21:47
The Federal Reserve will likely refrain from raising interest rates until at least its September meeting, even though elevated price pressures and an intractable fiscal outlook warrant immediate tightening, former Kansas City Fed President Thomas Hoenig told MNI.
Hoenig believes this week’s FOMC meeting is set to conclude with rates on hold again, in part because softer June inflation figures gave officials some breathing room.
“I don’t think they will hike,” he said in an interview. “The June inflation numbers came in much more favorably than we thought they would. Core inflation also came down pretty significantly, and we're now at least in a pause in the war.”
Hawkish dissents in favor of a hike are a possibility, said Hoenig. But dovish policymakers will argue that the Fed can wait to see whether July and August numbers continue the improvement or reverse course, while the increase in Treasury yields could also provide fodder for them to argue that financial conditions have already tightened somewhat in recent weeks, he said.
The Fed could then choose to hike in September, he added.
SURPRISE HIKE
A surprise rate hike this week would help Chairman Kevin Warsh burnish his inflation-fighting credentials, but it is probably not in the cards, said Hoenig. “I would love to see that. But I’m not going to see it,” he said.
Hoenig pushed back against the idea that the Fed can look through the current bout of inflation as the result of temporary supply shocks. (See MNI POLICY: Fed Inclined To Hike Despite CPI Breathing Room)
"That's fooling yourself. That's wilful blindness," said Hoenig. "What is the most common thing you hear today? The affordability problem."
FISCAL FRAGILITY
One of the biggest factors preventing the Fed from meeting its 2% price target, Hoenig said, is a ballooning budget deficit that he sees as inherently inflationary.
“Kevin Warsh and the FOMC have a real dilemma on their hands. It's going to be painful either way. If they choose to delay too long on the rate increase and the slowing of the balance sheet growth more, then you will only feed the inflation dragon because one thing that isn't going to slow down is the growth in the debt, the deficit,” said Hoenig, now a distinguished senior fellow at the Mercatus Center at George Mason University.
“The deficit will be another USD2 trillion. It has to be funded. So you're going to have enormous pressure, either on helping finance it through open market QE of some form, or you're going to see inflation – asset inflation, for sure, even continued general price inflation.”
For that reason, Hoenig thinks Warsh should buck a central Fed convention, which is not commenting on fiscal matters.
“You're going to have to take the approach of saying to the Congress of the United States, we are not going to monetize your debt any further,” he said.
TARGET DOUBTS
As things stand now, with inflation above target for more than five years, there are growing doubts among consumers and investors about the central bank’s commitment to the 2% inflation target, said Hoenig.
“They don't even know what it is anymore. I think that's an unfortunate fact because now we're not bound by this,” he said.
Jul-29 11:13The People's Bank of China is likely to increase liquidity injections to support accelerating government bond issuance in the third quarter, pushing money market rates lower, but traders’ expectations for further policy rate cuts remain limited, results from the MNI China Money Market Index survey showed on Wednesday.
The China liquidity outlook sub-index fell to 47.2 from June’s 51.0, the first drop below the 50.0 threshold in three months (the higher it reads, the tighter liquidity), as 79.2% of traders thought liquidity would remain loose next month, and 13.2% saw more comfortable conditions. The sub-index covering current liquidity conditions declined from 65.4 to 41.5, with only 9.4% of participants reporting tightness compared with 36.5% last month.
The introduction by the central bank of overnight reverse repos has been effective in offsetting seasonal funding demand this month by lenders as they faced regulatory assessments and tax payments at a time when additional issuance of government bonds was also drawing on liquidity, a trader from Henan said.
A special question this month showed traders expect the PBOC to add liquidity supply in Q3, which will see the peak of this year’s government bond issuance, with 32.1% of traders anticipating increasing supply, though 11.3% believe the Bank will maintain current levels in a bid to avoid encouraging excessive speculation. (See MNI INTERVIEW 2: China's Econ Restructure Needs More Support)
The PBOC has injected a net CNY100 billion via its medium-term lending facility and CNY700 billion through outright reverse repos so far this month, breaking with four consecutive months of net drains and boosting liquidity ahead of further bond issuance, a Tianjin trader said.
The sub-index for the PBOC’s OMO outlook fell to 44.3 from 48.1, as 11.3% of traders saw “net drains” next month, compared with 19.2% last month, and 66.0% thought the operations would ensure the current comfortable liquidity environment. The sub-index covering the PBOC’s current OMOs rose to 48.1 from June’s 44.2, with 84.9% of participants assessing OMOs as being “in line with demand.”
The sub-index for outright reverse repos in the coming month fell to 42.5 from 44.2, as 24.5% traders expected the PBOC would increase operations from 21.2% last month.
EASING EXPECTATIONS
Although traders believe the Bank will support government bond issuance, expectations for broad easing remains low. The next-six-month policy outlook sub-index printed at 35.8 from 31.7, with 28.3% of traders seeing additional easing moves, the lowest since September 2024. The sub-index for current policy bias fell to 42.5 from 40.4, with 15.1% seeing an easier stance, also the lowest since September 2024. (See MNI PBOC WATCH: July LPR To Hold On Cheap Loans And Inflation)
The PBOC’s seven-day reverse repo rate outlook sub-index edged up to 53.8 from last month’s 51.9, with 92.5% of participants expecting a steady policy rate in the coming month, and 7.5% expecting the PBOC to cut the rate, compared with 3.8% last month.
The other special question showed similar speculation, with 26.4% of participants judging that the PBOC will remain cautious on rate cuts in the second half of the year, even though Q2 GDP dropped out of the targeted growth range.
Imported inflation, combined with possible rate hikes in other economies, will impose constraints on further monetary policy easing, said a trader from Shanghai. A Beijing trader noted that with a backdrop of weak credit demand, dragging down lenders’ new liquidity needs, there is little necessity for interest rate or reserve requirement ratio cuts.
However, 15.1% of traders see the seven-day repo rate for deposit-taking institutions (DR007) falling next month from 5.8% thanks to ample liquidity, with the sub-index rising to 51.9 from 46.2 in June. DR007 is benchmarked by the PBOC’s seven-day reverse repo.
The MNI China Money Market Index (MMI) survey was conducted from July 13 to July 24, with participation of 53 traders from both state-owned and joint-venture banks.
The full press release can be seen here:
MNI China Liquidity Index July Presser 2026.pdf
The Bank of England is expected to hold Bank Rate at 3.75% on Thursday in another seven-two or in a six-three vote, and may restore its central projection despite continuing uncertainty over the conflict in the Gulf and the path of energy prices.
The division on the Monetary Policy Committee seems to resemble that of past votes, with most members including Governor Andrew Bailey doubting that a precautionary hike is needed to prevent any second-round effects amid labour market loosening and given the Iran war.
Megan Greene and Huw Pill have consistently voted for a higher path of Bank Rate than the committee at large, and seem set to vote for a precautionary hike once again.
Catherine Mann said in her paragraph in the June statement that while risks tilted to the upside, research showed that an activist hike could quickly constrain any resurgence of inflationary pressures. She has since noted that financial conditions, which tightened following the outbreak of the war, have since eased somewhat.
"Financial conditions were much tighter than they are now. That will be an important consideration for me," she said earlier this month. (See MNI BRIEF: Easier Financial Conditions Policy Key - BOE Mann)
Data from the Bank's Decision Maker Panel and Agents, often cited in MPC members' personal paragraphs and speeches, were slightly more benign in July. Firms' own-price inflation expectations eased to 3.9% from 4.1% and expected wage growth fell to 3.4% from 3.5%, according to the DMP, as the number of firms' expecting to raise prices in response to the energy shock fell nine percentage points to 55%. (See MNI INTERVIEW: UK Consumer Enjoys July 'Burnham Bounce' - GfK )
Similarly, the Agents’ summary of business conditions found that consumer-facing firms' price growth estimates have moderated somewhat since June, most notably for food, as supermarkets now expect food inflation of 4-5% up from 6-7%.
The Bank's quarterly MPR will provide updated forecasts from April, when it dispensed with a central projection for the first time since Covid. Even if the Bank restores a central projection, this might not imply greater unanimity on the committee, but would provide members a consistent benchmark against which to set out their diverging views. (See MNI INTERVIEW: BOE Central Scenario Should Stress Uncertainty)
This will be the first BOE meeting since Andy Burnham became prime minister and John Healey his chancellor of the exchequer, but, as the Bank must assume announced government policy, its forecasts will not reflect any change in fiscal policy until after the October Budget.
Jul-28 15:44
The Bank of England should retain a fan chart around any new central scenario this week to effectively communicate uncertainty, former BOE economist and Oxford University economics professor Michael McMahon told MNI.
"Some audiences ... the general public in particular, often have way too narrow a view about the uncertainty surrounding … a central bank forecast or just any outlook for the economy," McMahon said in an interview, after co-authoring a recent Bank working paper on central bank communications.
The Bank's July decision, widely expected to keep policy on hold, will be accompanied by the first scenarios since April, when in response to energy price volatility generated by the Iran war a specific central projection was omitted for the only time since Covid. Many expect the Bank to restore such a benchmark alongside scenarios in this monetary policy meeting, despite the continuing unpredictability of energy flows through the Persian Gulf, and McMahon said it should still stress uncertainty.
"My preference is that most of the time, we have something that looks like a central case, and some uncertainty around that," in order to provide a benchmark, he said. (See MNI INTERVIEW: BOE Needs MPC Central Forecast In July - Aikman)
"If they suddenly come out with one in [July] then actually that's telling us that there's a little bit more certainty about how the world will operate … They may well come to the decision that actually just having scenarios is how they want to go forward.”
RETURN TO BENCHMARK
On Thursday the BOE is expected to hold Bank Rate at 3.75%, where it has been since December, even as Catherine Mann may join regular dissenters Huw Pill and Megan Greene in voting for a hike. Chief Economist Pill has expressed concern about second-round effects, and has also said the shift away from central scenarios made it harder for the Committee to reach a collective view.
The 2024 Bernanke review recommended replacing the Bank's fan charts with different scenarios, and Monetary Policy Reports have included these since December.
"I think conditional communication, in the kind of scenario sense, is slightly harder for the general public to understand than just the fan chart or … some kind of uncertainty measure," McMahon said. and (See MNI: BOE Needs More Varied Scenarios - Bean, McMahon)
EXERCISE WITH SCENARIOS
The Bank published a blog comparing the spread between the three scenarios in its April MPR, which modelled how different paths for global energy prices and possible second-round effects could affect the UK economy, with firms' responses to its Decision Maker Panel survey.
McMahon emphasised that he was in favour of the type of exercise from the Bank blog, although selecting scenarios does require judgement. "It is a useful cross check." (See MNI INTERVIEW: UK Inflation Expectations More Loosely Anchored)
"At some point, there is a researcher or policy maker decision, which is which scenarios are we going to put in, and that will determine ... their relative weight in making up that overall distribution,” he said.
"You could design your scenarios so that you have three scenarios that really closely fit that overall distribution," he said, while "the risk with this exercise is that the people answering the DMP did not have the same scenarios in their head."
Jul-28 14:12
The Bank of Japan Board is widely expected to leave the 1% policy interest rate unchanged on Friday as policymakers continue assessing the impact of June's rate hike on economic activity and financial conditions amid growing upside risks to underlying inflation, with the focus shifting to whether Governor Kazuo Ueda provides stronger guidance on the timing of the next rate hike.
The Board raised the policy rate by 25 basis points at its June meeting, with the bank signalling further increases remain likely. (See MNI BOJ WATCH: Uchida Flags More Hikes; No Timing Hint) While markets see virtually no chance of a move this week, they have increasingly priced in another hike by year-end, with the Oct. 29-30 meeting carrying the highest implied probability at 48.1%.
BOJ officials expect annual consumer inflation to accelerate from July onward and are closely monitoring whether higher headline CPI feeds through to underlying inflation and expectations. The rebound in crude oil prices following the renewed Middle East conflict, together with the yen's depreciation to around JPY163 against the dollar, is expected to add further upward pressure to prices with a lag.
Markets will also scrutinise how Ueda characterises the future path of monetary policy and the conditions required to stabilise underlying inflation sustainably around the 2% target, with attention on whether he adopts a more hawkish tone.
FASTER HIKES
The BOJ has become less convinced it needs to wait for the full effects of higher interest rates to filter through the economy after June's rate increase failed to generate the degree of restraint on activity and financial conditions policymakers had anticipated. (See MNI POLICY: BOJ Sees Less Need To Wait Before Hiking) That has increased the possibility of another rate hike as early as September.
Officials had previously viewed an early follow-up hike as potentially jeopardising the achievement of the 2% target. However, that assessment has shifted as upside risks to prices have intensified. The limited impact of the move to 1.0% has surprised policymakers. Abundant liquidity, solid bank lending and robust corporate profits have continued to cushion businesses from higher borrowing costs, keeping financial conditions accommodative and sustaining price pressures.
The persistence of accommodative financial conditions alongside rising inflation risks is increasing pressure on the BOJ to tighten policy pre-emptively.
UPDATED FORECASTS
The updated Outlook Report is likely to show a modest upgrade to the median fiscal 2026 GDP growth forecast from April's 0.5% to a range of 0.5%-0.8%, reflecting stronger-than-expected support from the artificial intelligence investment boom. The final projection, however, will depend heavily on crude oil prices ahead of the meeting.
Median forecasts for fiscal 2026 core CPI and core-core CPI are expected to remain broadly unchanged from April's 2.8% and 2.6%. Although lower crude oil prices compared with April should provide some relief, stronger-than-expected corporate pass-through of higher costs is likely to keep underlying inflation elevated.
With the policy rate approaching the estimated neutral rate, the BOJ is expected to continue emphasising a gradual and cautious approach to further tightening while recognising the growing upside risks to inflation. At least two board members, however, favour raising rates steadily to avoid falling behind the curve, arguing that real interest rates remain negative and financial conditions accommodative.
The BOJ is also expected to maintain its assessment that underlying inflation will reach a level broadly consistent with the 2% price stability target sometime between the second half of fiscal 2026 and fiscal 2027. In principle, once the Bank judges the price stability target has been achieved in a stable and sustainable manner, the policy rate should rise toward its neutral estimate.
Jul-28 03:06
Canadian trade adviser and former Deputy Prime Minister Jean Charest told MNI the United States will relax 50% aluminum tariffs because American firms are unable to make up for the lost supply.
“I expect that’s one area where they will want to give, and to relent, because of the impact it has on their domestic market and supply chains,” Charest said in a brief interview Friday after a meeting with investors and Canada's trade minister Maninder Sidhu.
The remarks come after U.S. President Donald Trump escalated pressure on Canada by threatening 50% tariffs on another CAD30 billion of imports within a month. Prime Minister Mark Carney, who has named Charest to a U.S. trade advisory panel, said last week the move is pressure tactic but opens a window for a broad deal resolving high tariffs on specific industries.
“We know there’s a lot of pressure in the United States” as well, Charest said. “They don’t have the capacity to supply their market. And we’re their most important supplier.”
The U.S. produced 678,000 metric tons of aluminum in 2024 and imported 2.7 million metric tons from north of the border, according to the Aluminum Association of Canada. The power required to make up the difference is equivalent to four new Hoover Dams, the group says. (See: MNI INTERVIEW: Carney To Check Trump Power Play- Ex Colleague)
IT WAS THEIR CHOICE
Producers of the metal often used in autos, beer cans and military equipment have responded to U.S. tariffs by shifting exports to Europe, a strategy that has even helped boost overall business. Canada's exports of aluminum reached the second highest on record in May, a month where shipments jumped 51% on sales to the Netherlands, Italy and Greece according to federal statistics.
“The full action of the American government has created a situation where we’re selling more of our product to Europe than ever before, and around the world,” Charest said.
The Trump administration has alternated between saying Canada has nothing the U.S. needs and comments about cooperation to build secure supplies of energy and critical minerals. (MNI INTERVIEW: Carney-Trump Deal Will Include Tariffs-Chamber)
There's little risk Canada will face genuine anger from the U.S. for selling products like aluminum overseas, Charest said.
“No. I mean it was their choice. I don’t expect that to happen,” he said. “I mean how could they argue that we’re not treating them when they actually put us out of the market.”
Jul-27 16:49About
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