Central banks weigh rate moves

ECB eyes rate cut as growth concerns mount

As the Eurozone’s economic outlook dims, European Central Bank Governing Council member Olli Rehn has indicated the growing likelihood of a rate cut at the upcoming September policy meeting. Rehn pointed to rising downside risks, noting that while disinflation is progressing, the broader economic landscape remains precarious. “Recent negative growth risks have strengthened the case for a rate cut,” he stated, contingent on inflation continuing its downward path towards the ECB’s 2% target.

Although inflation appears to be on track, Rehn cautioned that the journey will be “bumpy,” with fluctuations expected throughout the year. The more pressing issue, however, lies in the Eurozone’s growth trajectory, particularly within the struggling manufacturing sector. “There are still no clear signs of recovery in manufacturing,” he said, despite easing energy costs that had previously dampened production.

Rehn expressed concern that if manufacturing investments remain weak and growth remains reliant on services, the anticipated recovery in productivity could be at risk. “The slowdown in industrial production may be more persistent than assumed,” he warned, raising the possibility of prolonged economic challenges if manufacturing does not regain momentum soon.

RBA: No near-term rate cut expected

Meanwhile, the Reserve Bank of Australia (RBA) opted to keep its cash rate unchanged at 4.35% in August, following a rigorous debate on whether to hike or pause. The minutes from the meeting reveal that while no immediate rate cut is expected, the Board remains flexible, neither ruling in nor out future rate adjustments depending on incoming data.

The decision to hold rates was driven by the need to balance inflation risks against labor market stability, particularly in light of ongoing uncertainties surrounding supply shocks and market expectations. “It’s unlikely that the cash rate target will be reduced in the near term,” the minutes noted, emphasizing the importance of focusing on real-time data over forecasts.

RBA members highlighted that the data flow since the previous meeting did not justify a change in the policy stance. The minutes also suggested that maintaining the current rate level for an extended period could be sufficient to bring inflation back within the target range, though this strategy will be reassessed as new economic indicators emerge.

Canada’s Inflation Slows to 2.5% in July

In Canada, inflation cooled to its lowest level in over three years, with the Consumer Price Index (CPI) rising by just 2.5% year-on-year in July, down from 2.7% in June. The deceleration was broad-based, with significant price declines for travel services, vehicles, and electricity, according to Statistics Canada. Core inflation measures also showed signs of easing, with the CPI median falling to 2.4%, slightly below expectations.

On a monthly basis, CPI increased by 0.4%, surpassing forecasts of a 0.3% rise, driven primarily by a 2.4% jump in gasoline prices. While energy costs provided some upward pressure, the overall inflation trend suggests a steady cooling, moving closer to the Bank of Canada’s target range.