Market hopes high that central banks will cut rates around mid-year
The famous skyline with its banking district is pictured in Frankfurt early evening April 13, 2015. REUTERS/Kai Pfaffenbach/File Photo
LONDON – Financial markets are turning their focus to when major central banks will start cutting interest rates, calling time on the most aggressive rate-hiking cycle in decades.
The European Central Bank on Thursday left rates unchanged but nodded at inflation easing, a day after Canada left rates unchanged and said it was too early to consider rate cuts.
READ: Central banks navigate tricky path from rate hikes to cuts
Here’s how big central banks stand, ranked in terms of the rate hikes in the recent tightening cycle.
1) United States
Markets have pared back Federal Reserve rate cut bets given hawkish central bank speak and a resilient economy.
Fed chief Jerome Powell said on Wednesday he still expects rate cuts, but inflation progress was “not assured.”
READ: Fed’s Powell still sees rate cuts, but inflation progress ‘not assured’
Traders price in roughly 90 basis points (bps) of U.S. rate cuts this year versus 150 bps at the start of the year, with a first move around June.
The Fed, which meets later in March, held rates steady at 5.25 percent to 5.5 percent in January.
2) New Zealand
The Reserve Bank of New Zealand kept rates unchanged in February, but toned down its hawkish stance, as the inflation outlook becomes more balanced.
Its forecasts suggested a lessening chance of another hike in 2024 and the kiwi dollar tumbled as a result. Markets don’t expect the first policy easing until November.
3) Britain
The Bank of England is one to watch. It’s currently expected to ease rates later than the Fed and the ECB, but some investors reckon a weaker growth outlook could prompt an early move, while others note the BoE could deliver larger rate cuts overall.
UK rates are at nearly 16-year highs and the BoE has softened its stance about when it might cut them, while one of its policymakers cast the first vote for a reduction in borrowing costs since 2020. Traders anticipate a first cut in August, having pushed that back from June at the start of 2024.
4) Canada
The Bank of Canada kept its key overnight rate steady at 5 percent on Wednesday and said underlying inflation meant it was too early to consider a cut.
No surprise then that the Canadian dollar rallied against the U.S. dollar afterwards. Notably, markets still see June as the most likely month for a first rate cut – unchanged from earlier.
5) Euro zone
The ECB kept borrowing costs at record highs on Thursday, but took a first, small step towards lowering them, saying inflation was easing faster than it anticipated only a few months ago.
READ: ECB lays ground for June rate cut as inflation falls
Markets latched onto that, with traders pricing in 100 bps worth of rate cuts this year, versus 90 bps before the decision.
June is still seen as the most likely start date for ECB easing, market pricing suggested.
6) Norway
Norway could be a late mover on rate cuts. Markets agree – traders price a quarter-point move in September.
Norges Bank kept its benchmark rate unchanged at 4.5 percent in January and said the cost of borrowing would likely stay at that level “for some time ahead”.
7) Australia
The Reserve Bank of Australia held rates steady in February at a 12-year high of 4.35 percent but warned that another hike remains an option given still-too high inflation.
Markets are ruling that 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
Sweden’s central bank, which left its key rate steady at 4% in February, says it might be able to bring forward the timing of a first rate cut if inflation continues to slow.
Economists see the Riksbank easing in May or June.
9) Switzerland
A fall in Swiss inflation to its lowest level in nearly two and half years in February has fuelled expectations that the Swiss National Bank could cut rates at its March 21 meeting.
Markets currently have priced in a roughly 50 percent probability that the SNB will cut rates from the current level of 1.75 percent. News that SNB Chairman Thomas Jordan will step down in September doesn’t appear to have dented market rate cut bets.
10) Japan
The Bank of Japan, a monetary policy outlier, is on the cusp of raising rates for the first time since 2007, bringing an end to eight years of negative rates.
Market expectations that it could do so as soon as its meeting that concludes on March 19 are growing, and the yen is strengthening accordingly. More than 80 percent of analysts in a Reuters poll in February thought the BOJ’s April meeting was most likely.
Spring wage negotiations, currently in progress, will be crucial in demonstrating whether inflation is close to sustainably meeting the BOJ’s 2 percent target, after years of deflation.
