BoJ, Fed & BoE to leave rates unchanged

17 March 2025

Emily Nicol
KEY THEMES TO WATCH:
While new Chinese figures today suggested that economic activity remained uneven in early 2025 and policymakers set out plans to boost households’ income and spending power, markets over coming days will continue to respond to new policy initiatives out of the White House and reactions from policymakers abroad, as well as updated signals on monetary policy from central banks in the US, Japan and UK, and a handful of further top-tier economic data releases:

*  The Bank of Japan (on Wednesday) will keep its policy rate unchanged at 0.5%, the highest since 2008. But not least given positive signals from this year’s spring wage settlements, Governor Ueda will likely again signal the BoJ’s desire to tighten policy further despite heightened uncertainties related to possible US ‘reciprocal’ tariffs. Data-wise, trade data (also Wednesday) will be watched in part for possible front-loading of shipments to the US by Japanese exporters ahead of new tariffs. CPI data (Friday) are expected to show a moderation in the headline inflation rate from 4.0%Y/Y in January by around ½ppt not least due to the resumption of government subsidies for electricity and gas. Rice prices (up more than 70%Y/Y in January) will also be watched, as will the BoJ’s preferred core measure, which excludes fresh food and energy (2.5%Y/Y that month) for signs that underlying price pressures continue to stir.

*  The Fed (Wednesday) will leave its target range for the Fed Funds Rate unchanged at 4.25-4.50%, with Chair Powell likely also to reiterate that the FOMC can afford to remain patient as the policy shifts of the Trump administration continue to play out in the real economy and financial markets. The Committee’s updated projections will be closely watched for revisions, not least to its dot-plot of forecasts for rates at year-end – in December, the median FOMC member signalled an expectation of 50bps of cuts to the FFR target range this year. Beyond the Fed, the US dataflow brings February’s retail sales (Monday) and IP (Tuesday).

* The BoE’s announcement on Thursday will see the majority on the MPC vote to keep Bank Rate unchanged at 4.50% amid persisting two-sided risks to the inflation outlook. But while the statement might well pay lip-service to the recent rise in inflation expectations and still-elevated private regular pay growth (data also due Thursday), downside risks to the growth outlook – likely to be illustrated in the CBI’s manufacturing and GfK consumer confidence surveys (Thursday & Friday) – will probably mean the Bank will leave unaltered its forward guidance that a gradual removal of policy restrictiveness remains appropriate.

* Final estimates of euro area inflation in February (Wednesday) will likely bring a modest downwards revision to the headline HICP rate from the initial estimate to 2.3%Y/Y, while confirming that core inflation eased to a three-year low (2.6%Y/Y) amid a moderation in services inflation. As in Japan, euro area goods trade data (Tuesday) might well see a front-loading of exports to the US in anticipation of higher tariffs, while consumer confidence (Friday) might be given support by more constructive policymaking in Europe. Finally, ECB President Lagarde will give a quarterly economic update to the EU's ECON Committee on Thursday.

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