The Monetary Sentinel: Caution prevails despite alleviated trade concerns

With China’s economy still stuck in a deflationary rut and new trade headlines emerging, the PBoC is likely to stay cautious. Meanwhile, the RBA seems set to cut its OCR by 25 basis points this week, alongside a rate reduction by the BI.

Reserve Bank of Australia (RBA) – 4.10%

The RBA is widely expected to cut its benchmark interest rate by 25 basis points at its upcoming policy meeting on May 20, with two additional reductions likely by year-end, according to a Reuters poll.

Market expectations have shifted following signs that core inflation has returned to the RBA’s 2–3% target range, alongside mounting concerns over global trade tensions.

After holding rates steady at 4.1% in April, the RBA signaled it was not yet ready to react to growing international uncertainty—particularly around US tariffs. However, Minutes from the April meeting indicated that the board viewed the May meeting as a timely opportunity to reassess its policy stance.

Even so, the central bank remains wary. The Minutes also warned against undermining hard-won progress on inflation by moving too soon, and officials have emphasised that a May rate cut is far from guaranteed.

Upcoming Decision: May 20

Consensus: 25 bps rate cut

FX Outlook: AUD/USD came under marked pressure after briefly breaking above the 0.6500 mark to reach fresh YTD highs in early May. Since then, the pair has settled into a sideways range, finding a floor around the mid-0.6200s. A decisive break above the 200-day SMA near 0.6460, would likely signal a more constructive short-term outlook.

People’s Bank of China – 3.10% / 3.60%

Since the start of the year, the PBoC has quietly shifted gears—injecting more liquidity into the system and signalling that further easing could be on the horizon, all in a bid to revive an economy still struggling with the aftershocks of prolonged COVID lockdowns.

Yet the spring data offered a mixed picture. On one hand, Q1 real GDP came in surprisingly strong at 5.4% year-on-year, giving Beijing’s policymakers some breathing room as they aim for around 5% growth in 2025. On the other, deflationary pressures lingered into April, with consumer prices remaining stubbornly below zero.

Meanwhile, fresh optimism on the US-China trade front has helped ease broader global tensions. The two countries reached a significant breakthrough during two days of negotiations in Geneva (10–11 May), a turning point six weeks after trade frictions intensified with reciprocal tariffs imposed on April 2. As part of the deal, Washington agreed to a 90-day pause and scaled back tariffs on Chinese imports to 30%—down sharply from 145%—including a reduction in fentanyl-related duties to 20%.

Even so, despite the easing in trade tensions, the PBoC appears inclined to hold policy rates steady for now. Still, further stimulus cannot be ruled out if domestic economic momentum fails to pick up.

Upcoming Decision: May 20

Consensus: Hold

FX Outlook: USD/CNH appears to be in a multi-day consolidation phase around the 7.2000 mark, hovering just below its 200-day SMA near 7.2200. This comes after the pair pulled back from near 18-year highs around 7.4300 reached in early April. For now, price action looks set to remain heavily driven by developments on the US-China trade front.

Bank Indonesia (BI) – 5.75%

Bank Indonesia (BI) expects the economy to expand between 4.70% and 5.50% this year, even as headwinds from Washington’s reciprocal tariff measures pose growing external risks. On this, the move threatens to curb trade volumes and intensify pressure on the IDR, testing the bank’s resolve to balance rate support with currency defence.

In the meantime, inflation is projected to remain comfortably within the central bank’s 1.50%–3.50% target range. With consumer demand only gradually recovering, price pressures are expected to drift toward the midpoint, though not swiftly enough to prevent the central bank from leaning dovish. That provides BI with room to cut rates further, while staying alert to currency volatility.

To that end, BI will maintain its presence in the foreign exchange market to help shore up confidence in the rupiah, senior official Erwin Gunawan Hutapea said last week.

Upcoming Decision: May 21

Consensus: 25 bps rate cut

FX Outlook: The Indonesian Rupiah (IDR) has regained some footing, hovering near two-month lows around the 16,400 level after hitting historic lows against the US Dollar (USD) in April. While the currency has shown signs of stabilisation, USD/IDR remains in the spotlight amid growing uncertainty over global trade dynamics.