By Naomi Rovnick and Dhara Ranasinghe
LONDON (Reuters) – Interest rate cuts by major central banks are underway, with the European Central Bank offering its second point cut of the year on Thursday.
Half of the 10 major developed market central banks tracked by Reuters have now started to ease policy, with the US Federal Reserve likely to join the club next week.
Here’s where the main rate setters are and what traders expect next.
1/ SWITZERLAND
The Swiss National Bank, the first among its western peers to cut borrowing costs in March, cut rates again in June to 1.25%. He indicated that he intends to continue.
Futures markets see another cut on September 26 as certain, with a 28% chance of a 50 basis point (bps) move, after annual inflation fell to 1.1% in August. Outgoing SNB president Thomas Jordan believes a stronger franc threatens exports.
2/ CANADA
The Bank of Canada implemented its third consecutive cut on September 4 to 4.25% and another 25bps cut in October is almost fully priced.
Canada’s economy is weak, strong population growth has helped raise unemployment to 6.6% and the Bank of Canada has reflected on inflation falling short of its 2% target.
3/ SWEDEN
Sweden’s Riksbank, which began cutting rates in May after successive hikes crushed inflation but weakened the economy, expects to cut borrowing costs by at least another 25 bp on September 25.
Swedish rates stand at 3.5%, but annual inflation has remained below the Riksbank’s 2% target.
4/ EURO ZONE
The ECB cut rates again on Thursday as eurozone inflation slows and the economy falters. He provided almost no clues about his next step, though investors bet on steady policy easing in the coming months.
Money markets were pricing in roughly 40bps for further easing later in the year and a near 42% chance of another 25bps cut in October.
5/ GREAT BRITAIN
The Bank of England is expected to hold benchmark borrowing costs at 5% on September 19, following its first cut of this cycle in August.
Stubborn services inflation suggests the BoE will ease more slowly than the Fed and ECB. Markets are pricing in just a quarter point more in 2024, likely in November.
6/ NEW ZEALAND
A convention for quarterly GDP and inflation data rather than monthly has baffled New Zealand’s central bank and domestic market watchers.
The Reserve Bank of New Zealand in August cut rates for the first time this cycle to 5.25%, a year ahead of its own projections. Markets expect another drop of a quarter point in October.
7/ UNITED STATES
The Fed’s next rate decision is on September 18, and markets are gripped by the prospect of the first US rate cut since 2020.
Comments from policymakers indicate that a cut is happening without suggesting that one is needed because the economy is reeling in recession.
Money markets see a 25bps cut next week as more likely than a further 50bps cut after Wednesday’s data showed some firmness in core inflation.
Traders are pricing in roughly 100bps of easing by the end of the year, while economists polled by Reuters forecast 75bps.
8/ NORWAY
Norway’s central bank, which meets next week, is in the hawkish camp.
It left rates on hold at a 16-year high of 4.5% in August and said a tight stance would likely be needed for “some time” to rein in inflation, still beating the bank’s 2% target.
Markets are only fully pricing in a first rate cut in December, meaning Norway’s easing cycle will likely start well after its peers.
9/ AUSTRALIA
The Reserve Bank of Australia has held rates at 4.35% since last November and believes inflation is still sticky, although data suggest the economy is struggling.
Markets see no more than a 50% chance of a rate cut until December.
10/ JAPAN
The Bank of Japan is the outlier, raising rates twice this year as inflation rises.
July’s rate hike caught markets off guard, exacerbating a sell-off in Japanese stocks and a rally in the yen. The BoJ says it will be careful to ensure volatile markets don’t hurt businesses. Rates are expected to be unchanged at 0.25% next week. Markets and economists expect another increase by the end of the year.
(Reporting by Naomi Rovnick and Dhara Ranasinghe; Graphics by Sumanta Sen; Editing by Mark Potter)
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