Dissecting Global Interest Rate Decisions Amid Acute Global Uncertainty

CGTN Europe

CGTN Europe spoke to City Index Analyst Fiona Cincotta.

Transcript

00:00Well, let's talk now to Fiona Sincotta from City Index.

00:03Good to see you again, Fiona. Welcome back to the programme.

00:05Let's begin, if we may, then, with the UK interest rate decision.

00:09They stayed on hold, but there was a split decision, wasn't there, within the bank.

00:13What are they thinking, do you think?

00:16Yes, it was interesting, the vote split.

00:18So the vote split was six policymakers voted to leave interest rates unchanged

00:24and three voted to cut by 25 basis points.

00:27The expectations were actually for a vote split of seven to two.

00:31So, in fact, the vote split was just slightly more tilted towards a rate cut

00:37than perhaps what we were expecting,

00:39which really does open the door to the fact that we're now expecting,

00:42or the market at least is expecting, an 80% probability of a 25 basis point rate cut in the next meeting.

00:50The meeting comes as inflation in the UK is still above that 2% target level, 3.4%,

01:00although we have seen some signs of weakness in the underlying economy and in the labour market.

01:05So slowly and gradually, inflation is expected to continue cooling

01:10if, of course, we don't have disruption from high oil prices,

01:15which could be a potential possibility given the conflict in the Middle East.

01:21So a similar sort of decision in the United States where the Fed held rates as well,

01:25despite the President's demands to lower them.

01:28What do you think happens next there?

01:31Yes, so it's interesting there because it's a slightly different situation.

01:35The Federal Reserve also lowered the growth forecast for the US and raised the inflation forecast,

01:42and that's to do with expectations surrounding Trump's trade tariffs.

01:46We've obviously got that universal tariff, which has already been implemented, the 10%.

01:51We've also got the unilateral tariffs that are coming potentially on July the 9th.

01:57We'll get some more information about what those might be, what's been agreed,

02:00what hasn't been agreed in the coming weeks.

02:02But the Federal Reserve Chair, Jerome Powell, did say that he expects inflation to rise meaningfully

02:08over the coming months and years because of these tariffs.

02:12So that's why we're seeing that more hawkish stance, that we say,

02:17or more cautious stance from the Federal Reserve regarding cutting rates further.

02:21Let's talk about Switzerland, which seems to be on the point of moving back

02:25into negative interest rate territory.

02:27They have the rate now at 0%.

02:29What are the potential implications of that?

02:32Yeah, so this is really interesting, what's been happening here,

02:36because the Swiss franc is a safe haven currency.

02:40So what we've actually seen is the Swiss franc has increased in value by over 10%

02:45against the US dollar across this year so far because of these uncertainties

02:51that we've been seeing in the US.

02:52And that's sort of seen this rotation out of the US dollar into the Swiss franc.

02:58Now, a high-valued Swiss franc means that imports coming in are cheaper.

03:03It also adds deflationary implications to the economy, which is why they've had to cut rates again

03:10and potentially will be needing to cut rates again further in September.

03:15So that's going to be really interesting to want to watch as well.

03:19Fiona, great to talk to you.

03:20Thank you for joining us.

03:21That's Fiona Sincotta from City Index.

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