By Naomi Rovnick and Dhara Ranasinghe
LONDON (Reuters) – Interest rate cuts by major central banks continue on track, with the European Central Bank on Thursday cutting interest rates by 0.25 percentage points for the second time this year.
Half of the 10 developed market central banks tracked by Reuters have already started easing monetary policy, with the U.S. Federal Reserve likely to join them next week.
Here’s where the major rate setters stand and what traders are expecting next.
1. Switzerland
The Swiss National Bank was the first Western country to cut borrowing costs in March, then cut rates again in June to 1.25% and has indicated it intends to keep cutting rates.
Futures markets are now seeing another cut on Sept. 26 as a certainty after annual inflation fell to 1.1% in August, with a 28% chance of a 50 basis point cut. Outgoing SNB President Thomas Jordan believes a strong franc poses a threat to exports.
2. Canada
The Bank of Canada cut interest rates for the third time in a row on September 4, bringing them to 4.25%, and another 25 basis points cut in October is largely priced in.
Canada’s economy is struggling, with strong population growth pushing unemployment to 6.6 percent and the Bank of Canada concerned about inflation running below its 2 percent target.
3. Sweden
The Riksbank, which began cutting interest rates in May after a series of hikes tamped inflation while the economy weakened, is expected to cut borrowing costs by at least 25 basis points further on Sept. 25.
Sweden’s interest rate is 3.5%, but annual inflation has remained stable below the Riksbank’s target of 2%.
4. Eurozone
The ECB cut interest rates again on Thursday as euro zone inflation slowed and the economy slumped. Investors are expecting a steady easing of policy over the coming months, but the central bank gave few clues about its next steps.
Short-term financial markets are pricing in about 40 basis points of additional easing by the end of the year, with about a 42% chance of another 25 basis points of rate cuts in October.
5. United Kingdom
The Bank of England is expected to keep benchmark borrowing costs unchanged at 5% on September 19, after cutting interest rates for the first time this cycle in August.
Persistent services inflation suggests the Bank of England will ease policy more slowly than the Fed or ECB, with markets pricing in another quarter-point cut in 2024, perhaps in November.
6. New Zealand
The practice of releasing gross domestic product (GDP) and inflation data quarterly rather than monthly has confounded New Zealand’s central bank and local market participants.
The Reserve Bank of New Zealand cut interest rates for the first time this fiscal year to 5.25% in August, a year earlier than the bank had expected, with markets expecting a further 0.25 percentage point cut in October.
7. United States
The next Fed interest rate decision is on September 18th, with markets focused on the possibility of the first US interest rate cut since 2020.
The policymakers’ comments do not suggest that a rate cut is necessary because the economy is sliding into recession, but they do suggest that a cut is coming.
Money markets are seeing a 25 basis point cut next week as more likely than a 50 basis point cut after data on Wednesday showed underlying inflation was solid.
Traders are pricing in about 100 basis points of easing by the end of the year, while economists surveyed by Reuters expect 75 basis points of easing.
8. Norway
The Norwegian central bank, which meets next week, has taken a hawkish stance.
The Fed left interest rates on hold at a 16-year high of 4.5 percent in August and said a tighter stance would be needed “for some time” to tame inflation, which remains above the central bank’s 2 percent target.
Norway’s easing cycle is likely to start much later than other countries, as markets are fully pricing in the first rate cut in December.
9. Australia
The Reserve Bank of Australia has kept its policy rate unchanged at 4.35% since November last year and believes inflation remains robust, although data shows the economy is struggling.
The market sees a more than 50% chance of an interest rate cut by December.
10. Japan
The Bank of Japan is an exception, having raised interest rates twice this year as inflation rises.
The July rate hike surprised markets, exacerbating a selloff in Japanese stocks and a stronger yen. The Bank of Japan said it would act cautiously to prevent market volatility from hurting businesses. It is expected to keep interest rates steady at 0.25% next week. Markets and economists expect further rate hikes before the end of the year.
(Reporting by Naomi Rovnick and Dara Ranasinghe; Graphics by Sumanta Sen; Editing by Mark Potter)
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