Throughout the world we are continuing to see the potential for divergence in monetary policy as countries enter different stages of their economic cycle. In the US increased attention is being given to when interest rates will eventually rise. A tightening labour market is leading some analysts to predict the first rise will be in September of this year. Market consensus appears to suggest that a rate rise will be sometime between October and December.

Despite this consensus, over the last week we have seen the World Bank and the IMF urge the US Federal Reserve to hold off from raising rates this year until next. Both have voiced concerns that economic data remains mixed and that an interest rate rise should be postponed until 2016 unless growth and inflation pick up more than expected. Both organisations are also concerned that a US interest rate rise would give rise to a strong dollar which would be detrimental to emerging markets.

Despite the potential for a rate rise in the US we continue to see interest rate cuts in other areas across the world. Only this morning we have seen the Reserve Bank of New Zealand cut rates by 25bp to 3.25%. This was unexpected but low inflationary pressures and weaker demand is cited as the reasons for the cut.

In South Korea we have also seen the central bank cut interest rates, lowering its seven day repurchase rate to 1.5%, representing the fourth cut since last August. The central bank quoted the potential threat to consumption from the Middle East respiratory syndrome (MERS) from which nine people have already died and over 3,000 people placed in quarantine. Other reasons quoted include the fall in exports due to the stronger Korean won against the Japanese yen and the potential for a US interest rate hike.

Moving forward further divergence in monetary policy is expected around the world as economies desynchronise.