Major Central Banks Signal Lower Interest Rates Amid Weakening Inflation

The recent indications from major central banks suggest a shift towards lower interest rates, with potential implications for global financial markets and the broader economy.

The recent indications from major central banks suggest that interest rates are likely to move lower in the coming months as inflation weakens. This marks the end of what has been one of the most aggressive tightening cycles in decades. The United States, UK, and Sweden have all left rates steady, with expectations of easing in the near future.

This shift in monetary policy could have significant implications for global financial markets and the broader economy.

UNITED STATES: FED SIGNALS LOWER RATES AHEAD

The Federal Reserve held rates steady at 5.25% to 5.5% on Wednesday, with Chair Jerome Powell stating that interest rates had peaked and would move lower in the coming months as inflation continues to fall. Traders are now anticipating a first cut in May, with 144 bps of easing in total priced in by year-end.

NEW ZEALAND: RESERVE BANK EXPECTED TO CUT RATES

The Reserve Bank of New Zealand held interest rates at a 15-year high of 5.5% in November and is expected to hold again at its Feb. 28 meeting before cutting as early as May. Inflation came in below the central bank's 5% forecast in the final quarter of 2023.

BRITAIN: BANK OF ENGLAND SOFTENS STANCE

The Bank of England kept rates at a nearly 16-year high on Thursday but softened its stance about when it might cut them. With two members of the BoE's Monetary Policy Committee voting for a rate hike, markets tempered their rate cut bets. Traders now see a roughly 50% chance of a quarter point cut in June.

CANADA: BANK OF CANADA SHIFTS FOCUS

The Bank of Canada held rates at 5% on Jan. 24 for the fourth consecutive meeting. It said that while underlying inflation was still a concern, the bank's focus was shifting to when to cut borrowing costs rather than whether to hike again. Markets fully price in a quarter-point cut by June.

EURO ZONE: ECB CONTEMPLATES POLICY EASING

The ECB left rates unchanged at a record high on Jan. 25, but a slightly softer stance on inflation gave markets a hint it was starting to contemplate policy easing. Money markets reckon the ECB could be the first big central bank to cut rates, with traders pricing in a roughly 90% chance of a quarter point rate cut for April.

NORWAY: NORGES BANK KEEPS RATES UNCHANGED

The Norges Bank, which delivered a surprise December rate hike, kept its key rate unchanged at 4.50% on Jan. 25 and said borrowing costs would stay on hold "for some time ahead". Norwegian core inflation fell to a 15-month low of 5.5% in December.

AUSTRALIA: RBA CONSIDERS RATE CUTS

The Reserve Bank of Australia held rates steady in December at 4.35%. Minutes of the meeting showed it had considered hiking again although markets are now pricing cuts from September.

SWEDEN: RIKSBANK MIGHT BRING FORWARD RATE CUT

Sweden's central bank left its key rate steady at 4% on Thursday, saying it might be able to bring forward the timing of a first rate cut if inflation continues to slow. Economists reckon the Riksbank will start easing in May or June.

SWITZERLAND: SNB CHAIRMAN SEES NO NEED FOR MORE HIKES

A strong Swiss franc has dampened price pressures in Switzerland, with inflation undershooting the Swiss National Bank's 2% target for the seventh straight month in December. SNB chairman Thomas Jordan has said there is no need for more hikes from the current 1.75% level.

JAPAN: BOJ SIGNALS PHASING OUT OF STIMULUS

The Bank of Japan maintained its ultra-easy monetary settings on Jan. 24 but signaled conditions for phasing out its huge stimulus were falling into place, suggesting it could soon end negative interest rates. Economists polled by Reuters expect the BOJ to make this move by April.

Major central banks are signaling a shift towards lower interest rates as inflation weakens, marking the end of an aggressive tightening cycle. This shift in monetary policy could have significant implications for global financial markets and the broader economy.