Fed’s rate-cut delay won’t hold back the tide of global easing

GLOBAL policymakers are not about to let the Federal Reserve’s delay in cutting interest rates distract them too much from their own easing efforts.

Among the 23 of the world’s top central banks featured in Bloomberg’s quarterly guide, only the Bank of Japan will not end up lowering borrowing costs within the next 18 months. Most are already set to do so this year.

In total, 155 basis points will be removed from an aggregate benchmark global rate compiled by Bloomberg Economics by the end of 2025. Even the Fed itself, whose plans for cuts in borrowing costs went awry in the face of stubborn US inflation, will still end up delivering a couple of moves this year, the forecasts show.

What is clear by now is that prospects are dwindling for a swift removal of the unprecedented global tightening delivered during the post-pandemic cost-of-living crisis.

In tandem with the caution of their US peers, central bankers worried about lingering consumer-price pressures are seen adopting a far gentler trajectory downwards for rates than they did on the way up.

Easing throughout the advanced world is also turning out to be relatively unsynchronised. In Europe for example, the Swiss National Bank has already cut rates twice this year, the European Central Bank (ECB) has moved once, the Bank of England has yet to do so and Norwegian officials just signalled that they are unlikely to act before 2025.

The global easing push could still suffer further setbacks, as the Fed and ECB have already shown. Australia’s central bank is not even ruling out another hike.

But with the second half of the year dawning, the prospect of looser constriction looks increasingly likely to materialise for much of the world. Here is Bloomberg’s guide to the outlook for central banks that set rates for a combined 90 per cent of the global economy.

Group of seven

US Federal Reserve

• Current federal funds rate (upper bound): 5.5 per cent

• Bloomberg Economics forecast for end of 2024: 5 per cent

• Bloomberg Economics forecast for end of 2025: 4 per cent

• Market pricing: A quarter-point by November, with 80 per cent chance of another in December.

Fed officials have pencilled in one rate cut this year, according to the median projection released in June, and all eyes will be watching for clues about whether that could come during the third quarter, towards the end of the year instead, or perhaps even later.

Policymakers have been offering a cautious outlook about the timing for the start of easing after data in early 2024 stoked fears of stalling progress on lowering inflation.

But some Fed officials have highlighted more recent figures that suggest pressures are again weakening. A key measure of underlying growth in consumer prices slowed in May for the second straight month.

Still, some officials have said it’s important not to overemphasise a few encouraging inflation prints. Fed chair Jerome Powell has stressed policymakers will be relying on a range of data, including on the labour market and prices, as they decide when it will be appropriate to lower rates.

European Central Bank

• Current deposit rate: 3.75 per cent

• Bloomberg Economics forecast for end of 2024: 3.25 per cent

• Bloomberg Economics forecast for end of 2025: 2.25 per cent

• Market pricing: A very high chance of another quarter-point cut in September, and close to three-in-four odds of one more by year-end.

Having lowered rates in June for the first time since its spate of hikes, the ECB is not rushing to do more just yet.

Inflation, while still in a gradual retreat, will not sustainably hit the 2 per cent target until near the end of 2025, according to the central bank’s latest batch of quarterly projections unveiled by President Christine Lagarde.

Wage growth, particularly in the services sector, is keeping consumer price gains elevated and officials nervous about loosening monetary policy too hastily.

A rate cut at their next meeting in July is all but ruled out. That makes September the next opportunity to move.

Bank of Japan

• Target rate (upper bound): 0.1 per cent

• Bloomberg Economics forecast for end of 2024: 0.5 per cent

• Bloomberg Economics forecast for end of 2025: 0.5 per cent

• Market pricing: Just under one quarter-point of tightening for the remainder of this year, with the next move expected to come by October.

The Bank of Japan’s (BOJ) highlight for this quarter could come as early as July.

Governor Kazuo Ueda is set to unveil a plan for quantitative tightening that reduces bond buying at that month’s gathering. A simultaneous rate hike can’t be ruled out.

Currencies are likely to keep complicating the BOJ’s job. The weak yen has already weighed on households and small businesses by inflating import costs, which is one reason the economy contracted twice in the past three quarters.

Japan’s finance ministry has conducted the biggest-ever intervention to support the yen in late April and early May.

There are growing market views that sooner or later it will be the BOJ’s turn to take action to support the currency.

Bank of England

• Current bank rate: 5.25 per cent

• Bloomberg Economics forecast for end of 2024: 4.75 per cent

• Bloomberg Economics forecast for end of 2025: 3.75 per cent

• Market pricing: Market wagers favour a 25-basis-point cut in August by a slim margin, with a 75 per cent probability of a second reduction by the end of the year.

The Bank of England (BOE) teed up a potential August rate cut at its Monetary Policy Committee meeting on Jun 20. Although the panel voted to leave rates unchanged at 5.25 per cent, two of the nine members wanted an immediate quarter-point reduction and, for at least three others, the decision was “finely balanced”, which would give the doves a majority.

The June decision was complicated by the UK election on Jul 4, with party campaigns in full swing. Although the MPC said that that vote “was not relevant” to the decision, the timing was inconvenient.

Economists believe the principal obstacles to lower rates remain sticky service prices and wage growth, which the BOE is using to measure underlying pressures. Inflation is back at the 2 per cent target but the central bank forecasts it to start rising again before the end of the year.

The strengthening economy, with the BOE projecting 0.5 per cent growth in the second quarter after 0.7 per cent in the first, is unlikely to delay a decision to cut rates because officials believe the policy will remain in “restrictive” territory even after the easing cycle begins.

Bank of Canada

• Current overnight lending rate: 4.75 per cent

• Bloomberg Economics forecast for end of 2024: 4.25 per cent

• Bloomberg Economics forecast for end of 2025: 3.25 per cent

• Market pricing: Traders see policymakers cutting rates twice more this year, in September and December.

In June, the Bank of Canada led the Group of Seven central banks into easing monetary policy, cutting the benchmark overnight rate to 4.75 per cent after it saw mounting evidence of slowing price pressures.

At the time, governor Tiff Macklem said it was “reasonable” to expect further rate cuts if disinflation continued, fuelling speculation that the bank was about to start a sustained divergence in policy from the Fed.

Since then, inflation data has reversed course – in May, the yearly change in the consumer price index surged back to 2.9 per cent and core pressures regained momentum, raising questions about how long officials will have to wait before cutting further.

Brics central banks

People’s Bank of China

• Current 1-year medium-term lending rate: 2.5 per cent

• Bloomberg Economics forecast for end of 2024: 2.3 per cent

• Bloomberg Economics forecast for end of 2025: 2 per cent

People’s Bank of China (PBOC) officials are walking on a tightrope as they try to balance the need to prop up the currency and stimulate the economy.

The Fed’s rate-cut delay continues to pressure the yuan. Meanwhile, China’s growth recovery remains lopsided, with exports and the broader industrial sector rebounding faster than consumption, reflecting sluggish domestic demand.

Many economists still see the PBOC lowering rates this year, but not until the Fed gives a clearer signal of rate cut plans.

The PBOC could also be preparing for a major shift in how it manages money and liquidity, though the changes hinted by governor Pan Gongsheng may not necessarily help address immediate problems such as deflation and weak borrowing demand.

Reserve Bank of India

• Current RBI repurchase rate: 6.5 per cent

• Bloomberg Economics forecast for end of 2024: 6 per cent

• Bloomberg Economics forecast for end of 2025: 5 per cent

The Reserve Bank of India (RBI) paused in June for the eighth straight review, awaiting inflation to ease further. But two rate-setters in the six-member monetary policy committee voted for a cut and change in stance, indicating a pivot is being discussed more actively.

Governor Shaktikanta Das had said that a shift could be considered when the RBI is sure that inflation, which is moderating but not fast enough, will settle around its target 4 per cent on a durable basis. At an event on Jun 18, he said it will be “too premature” to consider changing the stance and advocated shunning “any kind of adventurism”.

That may translate into a longer wait for rates to come down from a four-year high of 6.5 per cent. The July budget will be crucial to gauge if Prime Minister Narendra Modi is pursuing a loose fiscal policy to gain popularity after his party lost its majority in parliament in the recently concluded elections. That will probably put pressure on the central bank to ease too without waiting for the Fed to cut rates first.

Central Bank of Brazil

• Current Selic target rate: 10.5 per cent

• Bloomberg Economics forecast for end of 2024: 10.5 per cent

• Bloomberg Economics forecast for end of 2025: 9.5 per cent

Brazil is expected to keep borrowing costs steady to most of 2025 after policymakers unanimously voted to halt their easing campaign on Jun 19.

The show of unity was seen as an attempt to assuage investors who started questioning the bank’s inflation-fighting credentials in May, when all four board members appointed by President Luiz Inacio Lula da Silva were against the decision to slow down the pace of rate cuts.

By the end of the year, Lula will have appointed the majority of the board’s nine members.

The interruption of rate cuts is fuelling more political tension between the government and the monetary authority.

After the decision, Lula escalated his attacks against central bank chief Roberto Campos Neto, describing him as a “political adversary” who seeks to hurt the economy with high rates.

Bank of Russia

• Current key rate: 16 per cent

• Bloomberg Economics forecast for end of 2024: 16 per cent

• Bloomberg Economics forecast for end of 2025: 13 per cent

The Bank of Russia looks poised to start the third quarter by hiking its key rate, which has been held at 16 per cent so far this year.

While analysts had earlier expected monetary easing to begin in the second half, accelerating inflation that reached 8.3 per cent in May – more than double the bank’s target – is forcing policymakers into a rethink.

Governor Elvira Nabiullina warned in June of the possibility of a “significant” hike at the July rate meeting if inflationary pressures do not start to ease. Russia’s war in Ukraine continues to overheat the economy and stoke inflation, with persistent labour shortages fuelling a salary race and government spending on the rise.

South African Reserve Bank

• Current repo average rate: 8.25 per cent

• Bloomberg Economics forecast for end of 2024: 8 per cent

• Bloomberg Economics forecast for end of 2025: 7.5 per cent

The South African Reserve Bank (SARB) is set to maintain borrowing costs at 8.25 per cent for a while longer, although a path to rate cuts may be opening.

A stronger rand fuelled by the formation of a market-friendly coalition government after May 29 elections failed to produce an outright winner, and easing price pressures will help moderate inflation towards the central bank’s desired 4.5 per cent goal.

Governor Lesetja Kganyago has vowed that the bank will only adjust course on rates once inflation, currently at 5.2 per cent, is at the midpoint of its 3 to 6 per cent target range.

“We will continue to deliver on that mandate, irrespective of how our post-election politics plays out,” he said recently.

Mint central banks

Banco de Mexico

• Current overnight rate: 11 per cent

• Bloomberg Economics forecast for end of 2024: 10.5 per cent

• Bloomberg Economics forecast for end of 2025: 8.5 per cent

An unexpected currency crisis triggered by post-election uncertainties is the latest obstacle for Mexico’s central bank to keep easing monetary policy.

Banxico, as the bank is known, started its easing cycle with a quarter-point cut in March, but has not been able to deliver additional reductions since then.

The outlook has been complicated by inflation that’s accelerating again and by delays in the Fed’s own easing campaign, which has strong implications for the economy of its southern neighbour.

Yet Banxico governor Victoria Rodriguez remains hopeful that a more stable peso combined with slower core inflation will allow the bank to cut rates in the coming months.

Bank Indonesia

• Current seven-day reverse repo rate: 6.25 per cent

• Bloomberg Economics forecast for end of 2024: 6 per cent

• Bloomberg Economics forecast for end of 2025: 4.75 per cent

The prospect of further rate hikes still looms large over Bank Indonesia (BI) despite policymakers’ signals that its next move will likely be a cut.

Among the few major central banks whose main mandate is currency stability, BI may be forced to tighten monetary policy anew despite low inflation as the rupiah continues its slide to four-year lows.

Repeated market interventions will be limited by the central bank’s foreign-exchange reserves. Meanwhile, BI’s sale of high-yielding securities has proved insufficient to turn the tide on foreign flows, with investors still jittery over the incoming government’s plans to pursue looser spending and higher debt.

There may be little respite for the currency until the Fed finally pivots and Indonesia’s new administration clarifies its fiscal stance when it takes power in October.

Central Bank of Turkey

• Current 1-week repo rate: 50 per cent

• Bloomberg Economics forecast for end of 2024: 45 per cent

• Bloomberg Economics forecast for end of 2025: 25 per cent

After keeping its rate on hold for a third straight month, the Turkish central bank’s eyes will be on June’s inflation print.

Though headline inflation is set to slow from a peak of above 75 per cent in May, the bank’s preferred gauge is monthly readings.

Domestic demand is still too high for officials’ liking, and rate cuts are not expected to be on the table until the end of the year.

The monetary authority has pledged to preserve a tight stance until a sustained decline in the underlying trend of monthly price growth. Investors are also seeking bolder steps on the fiscal side to aid the disinflation efforts.

Central Bank of Nigeria

• Current central bank rate: 26.25 per cent

• Bloomberg Economics forecast for end of 2024: 27.75 per cent

• Bloomberg Economics forecast for end of 2025: 22 per cent

Signs that decades-high inflation may be peaking, and relative stability in the naira, suggest the Central Bank of Nigeria’s unprecedented tightening cycle is nearing an end. The bank has lifted rates by 1,475 basis points since May 2022.

While governor Olayemi Cardoso would not be drawn in a recent Bloomberg TV interview on whether that could be as soon as the Monetary Policy Committee’s (MPC) next meeting in July, he did say the central bank is “relatively pleased” with the results so far in addressing currency volatility.

Data will direct whether the panel sees the need for further hikes or not, he added.

“The MPC has been very clear in stating that they see inflation as a major impediment for the future of Nigeria, and they will do everything possible to ensure that they keep inflation in check and in fact bring it down as reasonably as they can and I don’t see that changing,” Cardoso observed.

Other G-20 central banks

Bank of Korea

• Current base rate: 3.5 per cent

• Bloomberg Economics forecast for end of 2024: 3 per cent

• Bloomberg Economics forecast for end of 2025: 2.5 per cent

The Bank of Korea (BOK) could be among the first in Asia to join the ECB and the Bank of Canada in making a policy pivot if inflation slows as expected later this year.

In May, the central bank kept the door open for a rate cut by leaving its consumer-price forecast unchanged, even as it raised its economic growth projection.

Governor Rhee Chang-yong said Jun 18 that the BOK could give a clearer outlook when the board meets in July.

A growing number of economists expect a cut in August. Still, concerns about a rate differential with the US and its effect on the won could make the BOK wait longer until the Fed acts more firmly.

Reserve Bank of Australia

• Current cash rate target: 4.35 per cent

• Bloomberg Economics forecast for end of 2024: 4.1 per cent

• Bloomberg Economics forecast for end of 2025: 3.1 per cent

The Reserve Bank of Australia (RBA) increased rates by less than key developed-world counterparts during the 2022 to 2023 tightening cycle, and as a result is likely to have to keep them higher for longer to return inflation to target.

Governor Michele Bullock certainly is not ready to talk about easing yet. Indeed, following the June policy meeting she restated that the board isn’t “ruling anything in or out,” a signal that another hike may still be on the table.

Economists and money markets see the risk of a hike at the bank’s next meeting in August though the broader consensus is that the next move will be down – though not until 2025.

That will likely make the RBA one of the last major institutions to embark on an easing cycle.

Before its Aug 5 to 6 meeting, the RBA will have seen a key second-quarter inflation reading; an unexpected spike in prices could yet force its hand on a hike one last time.

Central Bank of Argentina

• Current key rate: 40 per cent

• Bloomberg Economics forecast for end of 2024: 70 per cent

• Bloomberg Economics forecast for end of 2025: 55 per cent

Argentina’s central bank has been cutting rates aggressively – from 133 per cent when President Javier Milei took office to 40 per cent currently – even as consumer prices continue to rise at an annual clip of 276 per cent.

The negative real interest rate is part of a government strategy to reduce central bank liabilities by forcing investors into Treasury notes that pay higher yields.

Monthly inflation has slowed down to 4.2 per cent in May, a level not seen since 2022, but the relief may be short-lived as the removal of generous energy subsidies is expected to put pressure on prices again.

The International Monetary Fund has also said Argentina will eventually need to have positive real interest rates to encourage savings in the peso and to avoid US dollar outflows when the government lifts capital controls.

G-10 currencies and East Europe economies

Swiss National Bank

• Current policy rate: 1.25 per cent

• Bloomberg Economics forecast for end of 2024: 1 per cent

• Bloomberg Economics forecast for end of 2025: 1 per cent

The Swiss National Bank (SNB) cut rates already in March, pre-empting peers such as the ECB in the neighbouring eurozone.

With inflation only at 1.4 per cent – lower than in many other jurisdictions – and forecast to fall further over the year, officials have had fewer impediments to acting than elsewhere.

SNB decisions are scheduled only for once every quarter. Officials reduced borrowing costs again in June, and the question for policymakers now is whether they will extend their easing cycle in September or wait even longer.

Against that backdrop, a changing of the guard is imminent at the central bank. Vice President Martin Schlegel will succeed Thomas Jordan to the top job in October. Having spend his career working closely with the current president, he’s seen by observers as unlikely to make major changes in monetary.

Sveriges Riksbank

• Current policy rate: 3.75 per cent

• Bloomberg Economics forecast for end of 2024: 3.25 per cent

• Bloomberg Economics forecast for end of 2025: 2.25 per cent

The Riksbank is gaining confidence that inflation will not exceed its 2 per cent target and now sees it as likely that it can cut its benchmark rate two or three times more in the second half of the year.

Governor Erik Thedeen and his colleagues were emboldened to chart a slightly more dovish path at their monetary policy meeting last week after seeing that the Swedish krona was not hit by their decision to make the first easing move before the ECB.

Still, the world’s oldest central bank continues to underline the need to unwind constriction in a gradual manner, and a volatile krona remains a risk that could upend its plans, should the currency weaken to an extent that has a tangible effect on inflation through higher import prices.

The bank has four monetary policy meetings left before year-end, and an inflation print published on Jul 12 will be important for its next decision, due to be announced on Aug 20.

Norges Bank

Norway’s central bank may extend its rate pause until next year after a stronger-than-expected economic outlook and wage growth prompted Norges Bank to scrap its plan to start easing in September.

The energy-rich Nordic economy has proven more resilient to borrowing costs at 4.5 per cent – the highest level since 2008 – and stickier inflation than projected by governor Ida Wolden Bache and colleagues. At their latest meeting, officials raised their forecasts for economic expansion and pay increases this year and next.

While the strengthening of the krone from its weak levels has brought some relief to policymakers after recent worries about imported inflation, they still revised higher estimates for long-term underlying inflation, with their two-target remaining out of reach even by 2027.

Norges Bank’s latest plans confirm its reputation as one of the more aggressively hawkish rich-world central banks, in contrast with most other regional peers including neighbouring Sweden and the eurozone that have already started easing.

Reserve Bank of New Zealand

• Current cash rate: 5.5 per cent

• Bloomberg Economics forecast for end of 2024: 4.75 per cent

• Bloomberg Economics forecast for end of 2025: 3.25 per cent

The Reserve Bank of New Zealand (RBNZ) is talking tough, saying it will not cut rates until the second half of 2025 to make sure sticky domestic inflation is vanquished.

But almost all observers think it will be pressed into action much sooner than that amid mounting signs of economic gloom.

While New Zealand exited recession with 0.2 per cent growth in the first quarter, that may prove to be a temporary reprieve.

With consumer and business confidence in the doldrums, economists predict the economy will shrink again in the three months to June. That would make it five contractions in the past seven quarters.

Investors are betting rate cuts will start in November this year, and most local economists predict easing will begin in early 2025.

National Bank of Poland

• Current cash rate: 5.75 per cent

• Bloomberg Economics forecast for end of 2024: 5.5 per cent

• Bloomberg Economics forecast for end of 2025: 5 per cent

Poland’s central bank is likely to keep rates unchanged for the rest of the year as double-digit growth in wages worries policymakers in Warsaw.

While inflation has reached the 2.5 per cent target, the concern is that it will flare up later in the year as the government removes remaining crisis-era measures that have held down energy prices.

Lacklustre economic recovery may still swing the majority in favour of cuts earlier, but officials have coalesced around the view that monetary easing may wait until early next year.

Beyond inflation, governor Adam Glapinski will seek to fend off a parliamentary probe that the ruling coalition has launched into his conduct before last year’s election. The governor has denied any wrongdoing.

Czech National Bank

The Czechs have signalled they’re likely to slow or may even halt monetary easing – after four consecutive rate cuts by half a percentage point – in the second half of the year as officials aim to prevent inflation from staging a comeback.

While consumer price growth has stabilised near the 2 per cent target, governor Ales Michl and his colleagues see potential risks in wage growth, rising cost of services and a lending recovery.

“The bank board considers it necessary to persist with tight monetary policy and carefully consider any further rate cuts, approaching them with great caution,” Michl said after the last 50 basis-point reduction on Jun 27. BLOOMBERG