Gradual monetary easing ahead
The forward guidance in today’s MPC statement is virtually identical to that in February. It reads as follows:
Although inflation has eased and inflation expectations have fallen in the recent term, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward. This is compounded by significant global economic uncertainty.
As before, near-term monetary policy formulation will be determined by developments in economic activity, inflation, and inflation expectations.
For the sake of comparison, the February statement read as follows:
Although inflation has eased and inflation expectations have fallen, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward. This is compounded by elevated global economic uncertainty.
As before, near-term monetary policy formulation will be determined by developments in economic activity, inflation, and inflation expectations.
We interpret the forward guidance and the tone struck at today’s press conference as an indication that the MPC wants to remain cautious as long as signs of a slack in the economy are no clearer than they currently are and inflation expectations are as high as they have proven to be. A “tight monetary stance” probably means a real policy rate of around 4% in the near term.
Our preliminary forecast is for a 0.25 percentage point policy rate cut in May, following by a combined reduction of another 1 percentage point in H2/2025 as a whole. If inflation turns out more persistent than we expect and inflation expectations do not fall do any significant degree, rate cuts could come more gradually, but on the other hand, stronger signs of a cooling economy and favourable developments in inflation and inflation expectations could expedite the process.