Central Bank leaves rates unchanged in July

At its meeting on 31 July, the Central Bank decided to maintain the target range for the federal funds rate at 5.25%–5.50%, where it has been since July 2023. The decision was expected by markets.

The Bank decided not to start easing its monetary stance because both headline and core inflation are still above the Fed’s 2.0% target range, despite headline inflation undershooting expectations in June. Moreover, economic activity is strong—GDP rose more than expected in Q2, and job gains remain solid.

In its press release, the Central Bank did not provide specific forward guidance on the future direction of interest rates. That said, Fed Chairman Jerome Powell said that rate cuts “could be on the table” in September. Most panelists see two rate cuts this year.

Nomura analysts commented on the outlook: “The Fed’s base case and our economic outlook remain consistent with a patient approach to rate cuts. We continue to expect two 25bp rate cuts in September and December this year.” UniCredit analysts were slightly more dovish: “The Fed no longer considers the labor market to be a source of inflationary pressure and is watching closely for signs of further softening. […] Mr. Powell revealed that the FOMC had actively discussed the possibility of cutting interest rates at yesterday’s meeting, but that a 'strong majority' had supported staying on hold. We still expect a first rate cut in September and a total of 75bp of cuts this year.”

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