By Naomi Rovnick and Dhara Ranasinghe
LONDON (Reuters) – Interest rate cuts by major central banks are underway, with the European Central Bank making its second quarter-point cut of the year on Thursday.
Half of the 10 major developed market central banks tracked by Reuters have now begun to ease policy, and the US Federal Reserve is likely to join the club next week.
Here’s where the major rate-setters stand and what traders expect next.
1/ SWITZERLAND
The Swiss National Bank, the first of its Western partners to cut borrowing costs in March, cut interest rates again in June to 1.25%. He signaled his intention to continue.
Futures markets see another cut on September 26 as certain, with a 28% chance for a 50 basis point (bps) move after annual inflation fell to 1.1% in August. Acting SNB president Thomas Jordan believes a stronger franc threatens exports.
2/ CANADA
The Bank of Canada implemented its third consecutive rate cut on September 4 to 4.25%, and another 25 bps cut in October is almost full.
Canada’s economy is weak, strong population growth has helped push unemployment to 6.6%, and the BoC thought inflation was falling short of its 2% target.
3/ SWEDEN
Sweden’s Riksbank, which began cutting interest rates in May after successive hikes crushed inflation but weakened the economy, is tipped to cut borrowing costs by at least another 25 bps 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 interest rates again on Thursday as euro zone inflation slows and the economy falters. It gave little indication of the next step, even as investors bet on steady policy easing in the coming months.
Money markets were pricing in about 40 basis points for further easing by the end of the year and about a 42% chance of another 25 basis point cut in October.
5/ Great Britain
The Bank of England is expected to hold benchmark borrowing costs at 5% on September 19, after the first cut of this cycle in August.
Stubborn services inflation suggests the BoE will ease more slowly than the Fed and ECB. Markets are priced another quarter point in 2024, likely in November.
6/ NEW ZEALAND
A convention for quarterly rather than monthly GDP and inflation data has confused New Zealand’s central bank and domestic market watchers.
The Reserve Bank of New Zealand in August cut interest rates for the first time this cycle to 5.25%, a year earlier than its own projections said. Markets are forecasting another quarter-point drop in October.
7/ THE UNITED STATES
The Fed’s next rate decision is on September 18, and markets are gripped by the prospect of the first US interest rate cut of 2020.
Comments from policymakers signal a cut without suggesting one is needed as the economy lurches into recession.
Money markets see a cut of 25 bps next week as more likely than a cut of more than 50 bps after Wednesday’s data showed some resilience in core inflation.
Traders are pricing in about 100 bps of easing by the end of the year, while economists polled by Reuters estimate 75 bps.
8/ NORWAY
Norway’s central bank, which meets next week, is in the variety camp.
It left rates on hold at a 16-year high of 4.5% in August and said tightening was likely to be needed for “a while” to curb inflation, still above the bank’s 2% target.
Markets are only fully pricing in a first rate cut in December, meaning Norway’s easing cycle is likely to start well after comparisons.
9/ AUSTRALIA
The Reserve Bank of Australia has held rates at 4.35% since last November and sees inflation as still sticky, although data suggest the economy is struggling.
Markets see no more than a 50% chance of a rate cut by December.
10/ JAPAN
The Bank of Japan is the outlier, raising rates twice this year as inflation rises.
Its July rate hike caught markets by surprise, exacerbating a sell-off in Japanese stocks and a rally in the yen. The BoJ says it will tread carefully to ensure volatile markets do not harm business. It is expected to leave rates unchanged at 0.25% next week. Markets and economists anticipate further growth 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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