Cebr on interest rates: "Not much longer, we are expecting a rate cut in June"

CGTN Europe

Chief Executive of the Centre for Economics and Business Research Nina Skero speaks to CGTN Europe about Bank of England rate decision and casts a wider look at some of the leading central banks' moves.

Transcript

00:00 Let's talk now to Nina Skerra, who's Chief Executive at the Centre for Economics and Business Research.

00:04 Good to see you again, Nina. Welcome back to the programme.

00:07 So lots of central bank moves to talk about.

00:09 Let's start with the Bank of England.

00:12 No change there on interest rates, but when might there be?

00:16 I think we're getting pretty close.

00:19 So I think the clearest sign yet that the Bank of England is getting close to making a cut

00:25 is the changing in how the members of the Monetary Policy Committee are voting.

00:32 So today we saw none of the MPC members voting for a rate hike.

00:38 We saw eight votes to hold and one vote to cut.

00:42 So it seems like there is just gradual shift in what the policy makers think is the right decision.

00:48 So I think not much longer. We're expecting a rate cut in June.

00:51 And we had some new inflation figures, inflation falling.

00:55 When will that start to play into things, do you think?

00:59 Well, inflation, yeah, it's a bit of a complicated picture because on the one hand,

01:03 we're having inflation soften quite a bit.

01:06 We're expecting that trend to very much continue, especially into April,

01:10 given the changes in energy prices, which will play a big part.

01:14 So inflation on the other, on the one hand, it's still well above target,

01:18 but it is firmly on a downward trajectory.

01:21 So I think it's those two opposing dynamics that the policy makers are keeping in mind.

01:27 But almost certainly in April, we're going to see a big downtake in the rate of inflation,

01:33 which we think is what's going to ultimately drive the Bank of England to that June rate cut.

01:39 All right, well, let's move to Switzerland, then, where the bank cuts its interest rates,

01:44 the first major economy to do so.

01:46 How significant is that? And does it change anything for other economies?

01:50 Well, it's gotten quite a bit of coverage because of that surprise element.

01:56 I think a big consideration there has been the strength of the currency,

02:01 and that the bank has sort of felt comfortable saying,

02:06 we've essentially won this fight against inflation,

02:11 and we now need to consider a wider set of measures,

02:16 including what the strength of the currency means for the country and the country's exporters.

02:23 So they clearly thought, judged that actually now is the right time,

02:27 rather than in a few months' time.

02:30 And I suspect that other central banks around the world

02:32 probably aren't far behind in making a similar judgment.

02:35 Of course, the US Fed is the one that everybody watches.

02:40 They've now made clear signals about what they plan to do.

02:43 How does that, what does it say about the US economy in the shape that that's in?

02:48 So what we saw in the Fed's most recent comms is not a lot of change in its intentions,

02:58 in its outlook for 2024.

03:01 But what they have indicated is that they now judge that fewer cuts will be appropriate in 2025.

03:09 So they were previously suggesting 100 basis points hikes,

03:14 so basically a full percentage points,

03:16 and that has changed to 75 basis points.

03:19 So probably three cuts of 25 basis points each.

03:23 That's for 2025.

03:24 And I think the reason for that is that what's happening in the US economy

03:28 is that it's doing quite well.

03:29 The Fed has changed language on its assessment of the labor market

03:34 to basically say that the labor market is actually holding up quite well,

03:39 given the high level of interest rates.

03:41 So overall, it's very much a picture of strength across the Atlantic,

03:47 which is why the Fed is saying, right, we still think the economy is doing quite well.

03:51 It will be appropriate to cut interest rates this year,

03:53 but not to cut them as much the year after.

03:56 Nina, good to talk to you.

03:58 Thank you for joining us today.

03:59 That's Nina Scarrow from the Center for Economics and Business Research.

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