The Bank of England capped off a year of significant central bank rate cuts by keeping its main interest rate unchanged at 4.75% on December 19. The decision came one day after the U.S. Federal Reserve eased policy but signaled a cautious stance heading into 2025.
Across the globe, seven of the world’s ten major developed-market central banks reduced rates this year, with Australia and Norway holding steady. Japan, however, diverged from the trend, opting for rate hikes instead.
In Switzerland, the Swiss National Bank (SNB) made a surprising move by cutting rates by 50 basis points to 0.5%, the lowest since November 2022. This marks the SNB’s most significant reduction in nearly a decade, with annual inflation in Switzerland standing at just 0.7%. The SNB hinted that further cuts may be possible next year to prevent the Swiss franc from strengthening too much, which could harm domestic exports.
Canada’s central bank also slashed its rate by 50 basis points to 3.25%, the first consecutive half-point cuts since the COVID-19 pandemic. While inflation has accelerated to 2%, the Bank of Canada warned that further rate cuts would be gradual, with markets speculating on a potential 25-basis-point cut in January.
Sweden’s Riksbank reduced its rate by 25 basis points to 2.5% in December, signaling a slower pace of easing in early 2025 after cutting by 150 basis points so far this year. The central bank highlighted that monetary policy’s effects on the economy take time to manifest, encouraging a more measured approach moving forward.
Meanwhile, New Zealand’s economy officially entered a recession in the third quarter, solidifying the case for continued rate cuts. The Reserve Bank of New Zealand, which has already lowered its cash rate by 125 basis points to 4.25%, is expected to implement more cuts, with markets anticipating an additional 100 basis points by mid-2025.
In the Eurozone, the European Central Bank (ECB) continued its easing cycle, cutting its deposit rate by 25 basis points to 3% in December, the fourth such move this year. The ECB also left the door open for further reductions, signaling that additional rate cuts could be on the horizon.
In the U.S., the Federal Reserve followed suit with a rate cut on December 18. However, Federal Reserve Chairman Jerome Powell cautioned that further cuts would depend on continued progress in reducing high inflation, which led to a sharp drop in stock prices and a rise in bond yields.
Back in the UK, while the Bank of England kept rates steady, policymakers grew increasingly divided on whether further rate cuts were necessary to address the country’s slowing economy. Despite the dovish sentiment, markets placed less than a 50% chance of a 25-basis-point cut in February.
In Norway, the Norges Bank held its policy rate steady at 4.5% but indicated that rate cuts may begin as early as March 2025. Similarly, Australia’s Reserve Bank, after holding rates at a 12-year high of 4.35%, softened its stance on inflation, prompting markets to expect a rate cut in February.
In contrast, Japan’s Bank of Japan was the only major central bank to continue its hiking cycle. The central bank kept rates unchanged but suggested that it would await wage data in the spring before taking further action. This unexpected delay led to a reassessment of market expectations for a rate hike in January.
