Major central banks across global economies are moving in divergent directions: Australia raised interest rates this week for the first time in two years, while other central banks, even if they have likely ended their easing cycles, have adopted a more cautious stance. The European Central Bank and the Bank of England both held interest rates steady on Thursday; however, markets interpreted the Bank of England's decision as dovish. The U.S. Federal Reserve remains in the easing camp.
Below is the current stance of 10 developed market central banks:
1. United States The Federal Reserve held rates unchanged last month and signaled that further rate cuts may require a long wait. Nevertheless, traders have fully priced in an additional 25 basis point cut by July. Kevin Warsh, nominated by U.S. President Donald Trump to succeed Jerome Powell as Fed Chair when his term ends in May, has called for rate cuts and a reduction in the balance sheet. This combination could steepen the U.S. Treasury yield curve, but the overall direction of interest rates remains uncertain.
2. United Kingdom The Bank of England held rates steady on Thursday, with the decision passing by a narrow 5-4 vote, surprising markets. The central bank noted that with wage growth slowing, further rate cuts remain a viable option. This unexpectedly dovish tilt caused the policy-sensitive two-year UK gilt yield to record its largest single-day drop since April 2024. Traders now anticipate nearly 50 basis points of cuts by year-end, up from 35 basis points prior to the decision.
3. Norway Norway's central bank held its key rate at 4% last month and reiterated that a rate cut might come later this year, though not immediately. Investors are awaiting the latest economic forecasts due in March. However, recent data conflicts with further easing. In December, Norway's core inflation rate unexpectedly rose year-on-year to 3.1%, highlighting robust domestic demand.
4. Switzerland The Swiss National Bank (SNB), with its policy rate at 0%, has the lowest benchmark rate among major global central banks and is likely to maintain this level. The SNB's long-term inflation forecast remains within its 0-2% target range, but the bank faces a challenging situation: price pressures remain weak, while the Swiss franc, a safe-haven asset, is trading near multi-year highs against the euro and the U.S. dollar. The bank's next policy meeting is scheduled for March 19.
5. Canada The Bank of Canada held its rate at 2.25% in January, with policymakers warning that elevated geopolitical risks and uncertainty surrounding U.S. trade policy could deliver new shocks to the economy, making further monetary easing necessary. After nearly a year of tariffs and trade uncertainty, Canada's economic growth slowed in November, business confidence weakened, investment was constrained, and many firms anticipated layoffs.
6. Eurozone The European Central Bank held its key rate at 2% on Thursday, as expected by markets. Traders anticipate no policy changes this year. However, recent dollar weakness, volatility in commodity markets, rhetoric from the Trump administration regarding Greenland, and its pressure on the Fed to cut rates all suggest the situation could change rapidly.
7. Sweden Sweden's Riksbank held its rate at 1.75% on January 29th, stating that policy would likely remain unchanged "for some time ahead." The Swedish economy is expected to recover this year, with inflation cooling, but geopolitical risks still loom.
8. New Zealand The Reserve Bank of New Zealand has shifted to the hawkish camp. With Q4 annual inflation accelerating to 3.1%, the central bank has likely ended its easing cycle. Markets expect two 25 basis point rate hikes by the end of the year. The bank's next policy meeting is scheduled for February 18th.
9. Australia The Reserve Bank of Australia raised rates on Tuesday, just six months after its previous cut in August. Recent data showing strong consumer spending, record-high house prices, and ample household and business credit has intensified concerns that financial conditions are far from tight. Traders anticipate one more rate hike before mid-year.
10. Japan While other central banks have been cutting rates, the Bank of Japan (BOJ) is the only major central bank persisting with a tightening policy, though it is no longer a complete policy "outlier." BOJ policymakers have warned that a weaker yen is pushing price pressures higher than expected, with some officials cautioning that the bank risks "falling behind the curve." The BOJ raised rates in December to their highest level in 30 years and held them steady in January. Prime Minister Sanae Takaichi's dovish monetary and fiscal inclinations could complicate the BOJ's policy path, especially if she secures a strong mandate in Sunday's snap election.
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