Historical Central Bank week: A hike and a cut in G10

The past week will go down in history as the Bank of Japan (BoJ) hiked the policy rate for the first time in 17 years while the Swiss National Bank (SNB) cut its rate, becoming the first G10 central bank to do so in the current cycle. The BoJ decided to set the overnight call rate as its new policy rate and guided it in a range of 0.0-0.10% which finally marks the end of the era with negative policy rates. At the same time, it officially terminated yield curve control, although it promised to continue its bond purchases at broadly the same pace. The SNB cut the policy rate by 25bp to 1.50% in line with our call but clearly against consensus and market expectations. The cut came on the back of reduced inflationary pressures as well as the appreciation of the Swiss franc in real terms.

Both the Federal Reserve (Fed), Bank of England (BoE), and Norges Bank (NB) left policy rates unchanged, as expected. The Fed suggested that rate cuts are on the way, and the rate projections still showed three 25bp rate cuts for 2024 in line with our expectations. However, 2025, 2026 and longer-term ‘dots’ we revised slightly higher. The BoE maintained the Bank Rate at 5.25% as widely expected. Both the vote split in the committee, the statement, and comments from Governor Bailey were more dovish than previously, which sent EUR/GBP higher. Norges Bank unanimously decided to leave policy rates unchanged including the sight deposit rate at 4.50% as expected. Importantly, Norges Bank maintained the guidance for the first rate cut to come in September, which makes us postpone our call for the first 25bp rate cut from June to September.

On the data front, we got PMIs for the euro area, US, and UK. In the euro area, the composite PMI rose to 49.9 in March, indicating stagnation in the economy. Within the euro area, the service sector expanded with the PMI index at 51.1, while the manufacturing sector lagged at 45.7, particularly impacted by Germany. In the UK, composite PMI stood at 52.9, indicating economic growth, albeit with ongoing concerns regarding price pressures. In the US, PMI readings met expectations, with manufacturing rising to 52.5 and services remaining stable at 51.7.

We also got data from Asia where Chinese housing sales were slightly better than at the end of last year and industrial production had a decent start to the year. In Japan, February inflation came in 2.8% y/y as expected and “core-core” inflation at 3.2% y/y.

Due to Easter we will not publish weekly focus next week. However, there are plenty of important data releases during Easter and the week after. On Good Friday, we receive US February PCE inflation, and on Easter Monday we receive March ISM manufacturing. On Friday 5 March, we receive the US Job Report where we expect nonfarm payrolls growth to slow to 180k and see average hourly earnings growth at 0.2% m/m SA. In the euro area, we focus on March inflation on 3 April. We expect both headline and core inflation remained unchanged at 2.6% y/y and 3.1% y/y, respectively. The sticky core inflation is due to strong service momentum and a base effect due to Easter. In China, focus is on manufacturing PMIs, and in Japan we look out for Tokyo inflation, wage growth figures, and the Tankan business survey.

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