Key Takeaways
- The U.S. and South Korea have reached a new trade deal, with South Korean imports facing a 15% tariff rate and South Korea committing to a $350 billion investment in the U.S. and $100 billion in energy purchases.
- Brazil's Central Bank (BCB) has paused its tightening cycle, holding the Selic rate steady at 15% after seven consecutive hikes, indicating a "very long pause" to assess cumulative impacts amidst moderating economic activity and persistent inflation.
- The Bank of Japan (BOJ) is widely expected to keep its short-term interest rate unchanged at 0.5% at its upcoming meeting, maintaining a cautious yet upbeat outlook as trade uncertainties ease, but with an eye on sticky inflation and potential future hikes.
The global economic landscape is currently navigating a complex interplay of new trade agreements and evolving monetary policy stances from major central banks. Recent developments include a significant trade deal between the United States and South Korea, a pause in interest rate hikes by Brazil's Central Bank, and the anticipated steady-state monetary policy from the Bank of Japan.
U.S. and South Korea Forge New Trade Agreement
President Donald Trump announced a new trade deal with South Korea, averting a looming August 1 tariff deadline. Under the terms of the agreement, South Korean imports will be subject to a 15% tariff rate. In a substantial commitment, South Korea will also invest $350 billion in U.S.-owned and controlled projects selected by the President, and purchase $100 billion in liquefied natural gas and other energy products from the United States. This agreement follows intense negotiations, with South Korean officials in Washington to secure a deal before the previously threatened 25% tariffs were to take effect.
Brazil's Central Bank Pauses Rate Hikes
In a widely anticipated move, Brazil's Central Bank (BCB) has decided to keep its benchmark Selic interest rate unchanged at 15%. This decision marks a pause after seven consecutive rate hikes, which had brought the Selic rate to its highest level in over two decades. The Monetary Policy Committee (Copom) indicated a "very long pause" in the tightening cycle to assess the cumulative impacts of previous adjustments. While inflation expectations have shown some tentative moderation, they remain above the BCB's target for 2025 and 2026, at 5.1% and 4.4% respectively. The BCB emphasized the need for a prolonged period of significantly contractionary policy to guide inflation towards its 3% target.
Bank of Japan Expected to Hold Rates Steady
The Bank of Japan (BOJ) is broadly expected to maintain its short-term policy interest rate at 0.5% at the conclusion of its two-day monetary policy meeting. This would mark the fourth consecutive meeting the BOJ has held rates steady after a 25 basis point hike in January. While the central bank is likely to revise up its inflation forecast for the current fiscal year to around 2.5% from 2.2%, it is expected to maintain its view that underlying inflation remains below its 2% target. The BOJ's cautious stance is influenced by lingering uncertainties, including the impact of U.S. trade tariffs and recent political developments in Japan. However, the recent U.S.-Japan trade deal is seen as clearing some uncertainty, and analysts anticipate potential rate hikes later in 2025 or early 2026, with October emerging as a likely window for a hike.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.