Westpac on Central Banks
Many central banks have already begun re-tightening policy - with the Bank of Canada and Bank of England the latest additions to the pack - but what comes next will differ widely across jurisdictions. In the US, the combination of strong activity and sticky inflation have led FOMC members to more strongly advocate for further tightening. We have added a January hike to the December move already in our forecasts, before a long pause and eventual cuts in 2028. Europe shares has similar inflation concerns but not so much strength on the growth front. The ECB sees activity near trend and is uncomfortable with inflation at 3.8%yr, so we expect a December hike as insurance. Unlike market pricing though, we think this will be the last, with energy and investment-related price pressures easing through 2027 and scope to ease back towards neutral in 2028. China faces a very different challenge - not too much demand but too little. Industrial strength and technology investment are providing support but we expect policy direction and stimulus will be needed to turn household demand, with this expected to come in 2027 and property the most likely catalyst. The RBA meanwhile followed its Septemb
Many central banks have already begun re-tightening policy - with the Bank of Canada and Bank of England the latest additions to the pack - but what comes next will differ widely across jurisdictions. In the US, the combination of strong activity and sticky inflation have led FOMC members to more strongly advocate for further tightening. We have added a January hike to the December move already in our forecasts, before a long pause and eventual cuts in 2028. Europe shares has similar inflation concerns but not so much strength on the growth front.
The ECB sees activity near trend and is uncomfortable with inflation at 3.8%yr, so we expect a December hike as insurance. Unlike market pricing though, we think this will be the last, with energy and investment-related price pressures easing through 2027 and scope to ease back towards neutral in 2028. China faces a very different challenge - not too much demand but too little. Industrial strength and technology investment are providing support but we expect policy direction and stimulus will be needed to turn household demand, with this expected to come in 2027 and property the most likely catalyst.
The RBA meanwhile followed its September hike with another in November, but the Governor’s call to ‘take stock’ signals a December pause and we think the hiking phase is now more clearly over. We continue to pencil in a move to cuts in the second half of 2027. While a February hike is not completely out of the question, policy is clearly restrictive and downside risks are crystallising. Reflecting this, we have downgraded our GDP, labour market and housing market forecasts for 2027.