Thoughts

May 01, 2026 | 15:12

Let's Wait Awhile ... But Not Too Long

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has spent three decades with BMO Capital Markets Economics and ... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has spent three decades with BMO Capital Markets Economics and ... (Read more)

Hawkish but not all-out, wings flapping, feathers ruffling, “keeeee!!!!!”…

Yes, I had to Google sounds that hawks make and that’s what I heard.

In any event, the theme this week has been of varying degrees of hawkishness, and how policymakers voted. The BoJ was the most hawkish, with one-third (3) of the Board dissenting in favour of a hike. And yet, the JPY still weakened to a 4-year low, prompting the MoF to finally intervene for the first time since 2024.

The BoE stayed on hold but had one dissenter. Chief Economist Huw Pill voted in favour of a hike, but even uberdove Swati Dhingra said that the balance of risks for inflation “has shifted to the upside”. She was, however, outdoved by Alan Taylor, who supports staying on the sidelines “for some time, then… move to a neutral or accommodative stance.” Though markets interpreted the announcement hawkishly, Governor Bailey, in a repeat of what happened in March, quickly stepped in and threw cold water on such rate hike expectations. “I would very much give the message: no, it is not the case that we’re sort of giving some sort of slightly clandestine message, that interest rates are going to go up notwithstanding what we’ve decided today… today is an active hold.” Our Laurence Mutkin, Director & Head, EMEA Rates Strategy, sees it this way: “The MPC acknowledged that monetary conditions have been market—not policy-driven—and that policy choices themselves will be reactive not proactive. In other words, state-dependent. So everything in U.K. rates depends, for now, on energy prices and political events, and economic agents’ responses to them.”

The ECB also decided to keep interest rates at their current levels, with moderate levels of hawkishness. What was very interesting was when President Lagarde said during the press conference that a rate hike was discussed, although at the end of the day, it was unanimously decided to leave things the way they are. And obviously, they are not pre-committing to anything as they are not seeing the second-round effects of higher energy and food prices yet. And, corporate heads have told them that they’re not planning on raising wages quickly. Lagarde also pointed out that there are still six weeks before the June 11 decision, and they will have plenty of data to review and also, new baseline scenarios. Also interesting was when she said “Directionally, I think I know where we’re heading.” Really? Share!

Note that the usual sources who stepped out of the shadows following the meeting revealed that a June rate hike was “very likely” and that there was a broad agreement that the ECB needed to move. But sure, let’s hold… “we can live with June”. Also, “several” felt that at least two hikes were needed unless the war ends and Brent drops. Central bank heads from Germany, Austria and Estonia spoke out hawkishly on Friday, suggesting that they are among those moving toward June.

Bottom Line: It is all about duration… how long the war lasts and following that, how long until the damaged infrastructure is fixed. Watch inflation expectations, wage growth, and plain old CPI. Meantime, we continue to look for the BoJ to hike in June; but the ECB and the BoE, after all the hoopla this week, are still expected to stay cautiously on the sidelines. But both are ready to act. They just need a really good reason to back it up. Watch the data.