Central Banks Rate Adjustments

By Naomi Rovnick

LONDON (Reuters) – Central banks in the euro area and Switzerland cut rates on Thursday, following Canada’s 50 bps cut the previous day. Australia also softened its dovish tone this week, whereas Japan remains distinct.

1. Switzerland

The Swiss National Bank (SNB) cut rates unexpectedly by 50 basis points (bps) to 0.5% on Thursday, the lowest since November 2022 and its largest cut in nearly a decade. Swiss inflation is at just 0.7%, prompting the SNB to consider further rate cuts next year due to the safe-haven Swiss franc's strength.

2. Canada

The Bank of Canada also cut rates by 50 bps to 3.25% on Wednesday, marking its first consecutive half-point cuts since COVID-19. Further easing will be gradual, with inflation hitting 2% and potential tariffs from U.S. President-elect Donald Trump causing economic concerns, leading markets to forecast a 25 bps cut next month.

3. Sweden

With Sweden's economy shrinking, the central bank lowered rates by 50 bps to 2.75% in November, signaling more easing expected next year. With the Riksbank meeting next week, a 25 bps cut is considered likely.

4. New Zealand

The Reserve Bank of New Zealand’s recent Financial Stability Report highlighted a bleak economic outlook. With no further meetings until February, traders expect rapid cuts, with the cash rate previously lowered by 75 bps to 4.25%, potentially falling to just over 3% by late 2025.

5. Euro Zone

The European Central Bank (ECB) cut its deposit rate by 25 bps to 3% on Thursday, the fourth cut this year, suggesting further reductions might follow. Markets are pricing in about 130 bps of tightening by the end of 2025.

6. United States

The Federal Reserve remains cautious amid a robust economy and uncertainties regarding Trump's tax cuts and tariffs affecting inflation. A recent 25 bps cut brought the funds rate to 4.5%-4.75%, with expectations for another cut soon, but consumer sentiment remains optimistic.

7. Britain

The Bank of England has also been slow to ease, recently cutting rates for only the second time since 2020. Markets predict a steady rate at its Dec. 19 meeting. Expected base rate fall to about 3.9% by end-2025 as government spending is forecasted to spur growth.

8. Norway

The Norges Bank has maintained its policy rate at a 16-year high of 4.5%, guiding markets to anticipate no cuts during its Dec. 19 meeting due to rising inflation affecting its target.

9. Australia

Australia's Reserve Bank held rates steady at 4.35%, softening its inflation stance. The likelihood of a quarter-point cut in February is above 50%, responding to a recent growth slowdown despite tax cuts.

10. Japan

The Bank of Japan, which raised borrowing costs to 0.25% amid rising inflation, has maintained stability thereafter, with expectations for continued rates due to political uncertainties following recent elections. A rate hike may become likely in January.