ECB: We see ECB rates on hold in it’s 30th April meeting. We expect the ECB will likely wait for another 6 weeks before probably delivering a rate hike, for which the bar looks increasingly low given the ongoing supply disruptions in the oil market and beyond. Energy prices have fallen from their mid-March peak but remain materially higher than before the Iran war. The latest data point to weakening activity and rising price pressures. Looking ahead, we maintain our baseline of 25bp hikes in June and September to a peak deposit rate of 2.5%. BOE on Hold: We expect the MPC to hold the bank rate at 3.75% at the 30th April meeting. We are seeing a fundamentally different economic environment currently to the previous energy shock, and with rates still in restrictive territory and evidence of cyclical weakness growing, we continue to see a hold as the optimal path. We think an 8-1 split is likely. In this outcome, Pill is the dissenting vote. A combination of cyclical weakness, still restrictive policy rate and lack of evidence of second-round effects all lead to the hold decision. Moreover, we see the downside risk to output associated with a hike as potentially a larger issue for monetary policy over the medium term than a slower return to target. The most compelling reason for a long hold from BOE throughout the REMCY26 is the fact that there is limited evidence of second round effects. Hence, we believe that BOE is on a long hold in REMCY26 although current market pricing is for 54 bps of hike in REMCY26. BOJ on Hold: We expect the BOJ to leave the policy rate unchanged at its 27–28 April Monetary Policy Meeting (MPM). There has been no communication from the BOJ that would prompt the markets to factor in a rate hike in April. For now, we expect the BOJ to retain its wait-and-see stance towards the impact on the economy and prices going into the April MPM, notwithstanding ongoing uncertainties about progress with ceasefire talks and forex market movements. Given the uncertainty in the Middle East, we think it will be difficult for Governor Ueda to commit to a rate hike in June at the press conference following the April MPM. Eventually we think the BOJ is unlikely to maintain its wait-and-see stance in perpetuity, given the risk of yen depreciation. Our main scenario remains a rate hike at the June MPM. This might be followed by a long status quo at least till Dec’26. Markets are currently pricing in 44 bps of hikes in REMCY26 which looks to us a tall ask from BOJ. We remain bearish on JPY and believe it might test the June’24 highs of 162 odd levels post the BOJ meeting on 28th April. The risk of intervention might come around 162-165 levels.
