Central banks are in action and likely take their lead from the Fed. That could mean a less—hawkish-feared approach – cuts are coming, only a matter of when.

RBA – decision due May 7th is expected to leave rates unchanged.

Unexpectedly high inflation in the March quarter has cooled expectations for an imminent cut. As with the Fed, inflation is not screaming for cuts just yet. Governor Bullock warned that the inflation battle “isn’t yet won”, and the risks to its outlook remain “finely balanced”. Capital Economics has put its head above the parapet to say it expects a hike: “The case for the RBA to tighten policy is growing increasingly compelling. Underlying inflation is all but certain to overshoot its current forecast … we now expect the RBA to hike rates by another 25bp when it meets.”

The consensus is for a hold. The RBA may however hint at a hike to keep the market from pricing in too much easing. Westpac: “We expect they (RBA) will remain on hold, but they will probably maintain and possibly amp up their rhetoric about the risk of a hike. I don’t think the (inflation) surprise we saw in March was enough to tip the balance to them hiking, but you cannot rule it out completely.”

Bank of England – decision due May 9th, expected to hold

The Bank of England needs to decide whether it is time to steer the market towards a cut, which would be the first in four years.

Most think it’s too early, but the Monetary Policy Committee is not speaking as one. Dave Ramsden, the BoE’s deputy governor, suggested last month that he did not need to see much more evidence of falling inflation to vote for a rate cut. He emphasised the “downside risks” to the BoE’s February inflation forecast, which predicted CPI inflation would fall back to 2% before rising later in the year. Huw Pill, the Bank of England’s chief economist, sounded more hawkish in April, saying that he felt “relatively cautious” about starting rate cuts.

Inflation is coming down and seen falling back to 2% soon. CPI fell from 3.4 per cent to 3.2 per cent between February and March, whilst core inflation fell to 4.2% from 4.5%, but it’s likely the BoE will want to see the April data before making a decision. However wage growth at around 6% shows there is still heat in the labour market. Financial markets think the Bank of England will cut by August, but the BoE might signal it’s ready to move in June, in tandem with an expected move by the ECB.