Central Banks Revise Interest Rate Expectations Amid Dovish Repricing

Central banks around the world have been revising their interest rate expectations following recent decisions and data releases. The Reserve Bank of New Zealand (RBNZ) still sees a 58 basis point (bps) hike by year-end, with a 97% probability of a rate increase at its next meeting.

The European Central Bank (ECB) now anticipates a 38 bps hike, but only has a 68% chance of raising rates at the next meeting. The Federal Reserve (Fed), meanwhile, expects a 34 bps hike, with a similar probability to the ECB.

Despite these expectations, many central banks have seen their interest rate pricing revised downward in recent days. This dovish repricing is attributed to several factors, including lack of clear second-round effects from inflation and cautious comments from policymakers.

The Fed's decision to leave interest rates unchanged has been particularly influential in this shift, with three dissenting votes for a hike. While the consensus was that two members would prefer a rate increase, the fact that another hawkish member joined the dissenting camp contributed to the dovish repricing.