Diverging Economic Paths: Central Banks Chart Their Own Course
As the world’s major central banks convene for their first meetings of 2025, it’s clear that policymakers are no longer singing from the same hymn sheet. Gone are the days of cautious rate cuts; instead, each bank is forging its own path, driven by unique economic circumstances.
Switzerland: Leading the Charge on Easing
The Swiss National Bank has been at the forefront of monetary easing, slashing its benchmark rate from 1.75% to 0.5% in 2024. With inflation comfortably within the SNB’s 0-2% target range, investors expect a further 25 basis points cut at the March meeting. Chairman Martin Schlegel hasn’t ruled out revisiting negative territory.
Canada: Tariff War Fears Prompt Rate Cut
The Bank of Canada trimmed its key policy rate by 25 basis points to 3% on Wednesday, citing concerns over a potential tariff war with the United States. Governor Tiff Macklem emphasized that monetary policy can’t offset the effects of higher tariffs, but it can help smooth the adjustment. Market pricing suggests at least one more rate cut this cycle, likely in April.
Sweden: Boosting Sluggish Growth
Sweden’s Riksbank cut rates by 25 basis points to 2.25% on Wednesday, aiming to stimulate sluggish growth. Governor Erik Thedeen hinted that the Riksbank may be done with rate cuts, but remains ready to act if the inflation or economic outlook changes.
New Zealand: Navigating Recession
The Reserve Bank of New Zealand has cut the official cash rate by 125 basis points since August, as inflation eased and economic activity contracted. It may cut by a further 50 basis points next month, though its chief economist cautioned that the RBNZ needs to “feel its way” as the official cash rate approaches neutral.
Euro Zone: Easing Continues
The European Central Bank cut interest rates by 25 basis points on Thursday, sticking to its view that euro area inflation is increasingly under control. This marks the fifth ECB rate cut since June 2024, with traders fully pricing three further 25 basis points cuts this year.
United States: Holding Steady
The Federal Reserve held interest rates steady on Wednesday, with Chair Jerome Powell emphasizing that there’s no rush to cut rates again until inflation and jobs data justify it. Powell is waiting to see the impact of new policies on inflation, employment, and overall economic activity.
Britain: Managing Conflicting Signals
The Bank of England is expected to cut rates by 25 basis points next week, its third move this cycle. The BoE must balance stubborn inflation with a slowing economy, with traders expecting two further cuts this year.
Norway: Planning Rate Cuts
Norway’s central bank has yet to cut rates this cycle, but plans to do so three times this year, according to its latest forecasts. Market pricing is broadly aligned with these expectations.
Australia: Cooling Inflation
The Reserve Bank of Australia is getting closer to its first rate cut this cycle, following Wednesday’s data showing consumer inflation cooled to 2.4% in the December quarter. Markets now see an 80% chance of a 25 basis points cut in February, with three such moves fully priced in for this year.
Japan: Bucking the Trend
The Bank of Japan, the only G10 central bank in a hiking cycle, raised rates to 0.5% last week, its highest since the 2008 global financial crisis. It also revised up its inflation forecasts, underscoring its confidence in rising wages keeping inflation stable around its 2% target. A former policymaker predicts another rate hike in June or July, with a goal of reaching at least 1.5% in the next two years.
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