Rabobank’s Global Daily stresses that unchanged rates in the UK and US contrast with recent hikes by the ECB and Bank of Japan, but argues this is less divergence than it appears. The authors see global monetary policy still converging at a somewhat more restrictive level and expect any additional tightening in the Eurozone to be limited in scope.

Convergence at tighter global settings

"Unchanged rates in the UK and US this week underscore the differences in global monetary policy dynamics. Recall that the ECB hiked last week, as did the Bank of Japan on Tuesday. However, the ECB’s starting point, a broadly neutral policy rate, was clearly different from the slightly restrictive policy stance in the UK and US."

"Also keep in mind that, prior to the conflict in the Middle East, both the Fed and the Bank of England were expected to cut rates this year. So, arguably, this is not as much of a policy divergence as it may seem. Rather, global monetary policy may still be converging, albeit at a slightly more restrictive level. Indeed, we would also argue that the Bank of England’s reluctance to hike from current rates supports our view that any policy tightening in the Eurozone will probably also be limited in scope."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)