LONDON (Reuters) – Financial markets are turning their attention to when major central banks will start cutting interest rates, calling time on the most aggressive rate hike cycle in decades.
The European Central Bank left interest rates unchanged on Thursday but nodded to easing inflation, a day after Canada left rates unchanged and said it was too early to consider rate cuts.
Here’s a look at where the major central banks are faring, ranked in terms of rate hikes in the recent tightening cycle.
1) UNITED STATES
Markets have scaled back the Federal Reserve’s interest rate cuts, given the central bank’s hawkish statements and a resilient economy.
Fed chief Jerome Powell said Wednesday that he still expects rate cuts, but that progress on inflation is “not assured.”
Traders are pricing in around 90 basis points (bps) of US interest rate cuts this year, up from 150 basis points at the start of the year, with the first step around June.
The Fed, which meets later in March, kept interest rates steady at 5.25% to 5.5% in January.
2) NEW ZEALAND
The Reserve Bank of New Zealand left rates unchanged in February but has softened its hawkish stance as the inflation outlook becomes more balanced.
The forecasts suggested that the chances of another rise in 2024 would decrease, causing the dollar to plummet. Markets do not expect the first policy easing until November.
3) Great Britain
The Bank of England is one to keep an eye on. Rate cuts are currently expected to be delayed by the Fed and ECB, but some investors think weaker growth prospects could prompt an early move, while others note the BoE could deliver bigger rate cuts overall.
UK interest rates are at their highest in almost 16 years and the BoE has softened its stance on when it might cut them, while one of its policymakers cast the first vote for a cut in borrowing costs since 2020. Traders expect a first cut in August, after pushing that back to early June 2024.
4) CANADA
The Bank of Canada held its key interest rate steady at 5% on Wednesday, saying underlying inflation meant it was too early to consider a cut.
It is therefore no surprise that the Canadian dollar subsequently rose against the US dollar. Notably, markets still view June as the most likely month for a first rate cut – unchanged from previously.
5) EURO ZONE
The ECB kept borrowing costs at record levels on Thursday but took a first small step towards lowering them, saying inflation was falling faster than expected just a few months ago.
Markets responded, with traders pricing in a 100 basis point rate cut this year, down from 90 basis points before the decision.
June is still seen as the most likely start date for ECB easing, market prices show.
6) NORWAY
Norway could be a late mover with interest rate cuts. The markets agree: traders are pricing in a quarter-point move in September.
Norges Bank kept interest rates unchanged at 4.50% in January and said borrowing costs were likely to remain at that level “for some time”.
7) AUSTRALIA
The Reserve Bank of Australia kept interest rates steady at a 12-year high of 4.35% in February, but warned that another rate hike remains an option given still too high inflation.
Markets are ruling this out, with traders fully pricing in a first rate cut in September after the economy grew at a sluggish pace in the fourth quarter.
8) SWEDEN
The Swedish central bank, which left its key interest rate steady at 4% in February, says it may bring forward the timing of a first rate cut if inflation continues to slow.
Economists expect the Riksbank to ease in May or June.
9) SWITZERLAND
A drop in Swiss inflation to the lowest level in almost two and a half years in February has fueled expectations that the Swiss National Bank could cut interest rates at its March 21 meeting.
Markets are currently pricing in a roughly 50% probability that the SNB will cut rates from the current level of 1.75%. The news that SNB chairman Thomas Jordan will resign in September does not appear to have dented bets on the market rate cut.
10) JAPAN
The Bank of Japan, a monetary policy outlier, is poised to raise rates for the first time since 2007, ending eight years of negative rates.
Market expectations that this could happen once the meeting concludes on March 19 are growing, and the yen is strengthening accordingly. More than 80% of analysts in a Reuters poll in February thought the BOJ meeting in April was most likely.
The spring wage negotiations, currently underway, will be crucial in demonstrating whether inflation is close to the BoJ’s sustainable target of 2% after years of deflation.
