(Bloomberg) — With the last traces of the global inflation shock fading, the shift toward lower borrowing costs is about to maintain momentum as economies tread toward a new year fraught with unknowns.
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Now that the US Federal Reserve has joined rich-world peers with its own initial interest-rate cut, lingering worries about consumer prices are increasingly poised to give way to concerns about growth around the world, according to Bloomberg Economics.
Its aggregate gauge of advanced-economy borrowing costs shows a decline of almost 40 basis points between now and the end of the year, and a further drop totaling more than double that amount by the time 2025 is out.
While the Fed will now take charge of the global easing push, the shift lower is likely to be widespread, with most of the rest of the Group of Seven staying on board, and even holdouts such as Norway and Australia likely to join in, in due course.
But unanswered questions are haunting the outlook, with the US election in November key among them. It’s hard to guess just how different Donald Trump taking office in January might be from Kamala Harris, but — fully implemented — his policies on tax, tariffs and immigration would have major implications for the US economy — and so also for the Fed.
Whatever happens, a sustained period of central bank activism, in contrast to the recent hiatus of higher-for-longer rates, is likely to take hold.
Out of 23 institutions focused on here, just three are anticipated to leave borrowing costs unchanged over the coming three months, and every one of them is forecast to tweak them in some way by the end of 2025.
And while monetary easing is the prevailing theme, some countries are likely to see tightening instead — not least with Japan seen hiking its rate again, and Brazil doing so too.
What Bloomberg Economics Says:
“The Fed’s half-point move and the PBOC’s surprise stimulus mean the narrative on central banks has shifted from inflation-crushing hikes to market-boosting cuts. The BOJ heading in the other direction — and all that means for the yen carry trade — is a major cross current. The second may come from the US election. If delivered, Trump’s campaign pledges on taxes, tariffs, and deportations would shift the trajectory for the economy, and force the Fed into another course correction.”
—Tom Orlik, global chief economist
Here is Bloomberg’s guide to the outlook for central banks that set rates for a combined 90% of the global economy.
GROUP OF SEVEN
US Federal Reserve
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Current federal funds rate (upper bound): 5%
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Bloomberg Economics forecast for end of 2024: 4.5%
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Bloomberg Economics forecast for end of 2025: 3.5%
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Market pricing: A quarter-point cut in November, with a 36% chance of a bigger half-point move. Another reduction in December is expected.
With the Fed’s first rate cut in years finally out of the way, investors have turned their focus to what the size and pace of additional reductions could look like in the fourth quarter and beyond.
While the central bank began with a bigger-than-usual move of a half point, Chair Jerome Powell has said that offcials shouldn’t be expected to continue at that pace, and that they would be “recalibrating policy down over time.”
They anticipate lowering rates by another half point this year, and an additional full percentage point over 2025, according to the median projection released in September. But policymakers are split, with a large minority seeing a quarter point or less of further cuts in 2024.
Officials have continued to emphasize that the path ahead will depend on incoming economic data. They have said they are keen to prevent a cooldown in the US labor market from intensifying, while monitoring inflation for continued progress down towards the central bank’s 2% goal.
The outcome of the US presidential election in November will likely stir up conversations about how Fed personnel could change during the next administration, given that Powell’s term as chair ends in 2026. Republican contender Trump has already said he wouldn’t reappoint Powell, while Democratic nominee Harris has yet to comment publicly on the question.
What Bloomberg Economics Says:
“The Fed cut rates 50 basis points in September and we expect 50 basis points more cuts this year – including 25 basis points at both the November and December meetings — and another 100 basis points in 2025. We expect unemployment to rise to 4.5% before end-2024, exceeding the median FOMC view of 4.4%, and 5.0% in 2025. If that overshoot occurs before the last FOMC meeting of the year, there’s a decent chance the November or December cut could be 50 basis points.”
—Anna Wong
European Central Bank
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Current deposit rate: 3.5%
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Bloomberg Economics forecast for end of 2024: 3%
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Bloomberg Economics forecast for end of 2025: 2%
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Market pricing: An almost 90% chance of a quarter-point cut in October, followed by another same-size move in December.
With the euro-area economy showing waning momentum, investors are increasingly betting on the ECB reduce borrowing costs again this month. That would quick rate cuts from the quarterly pace that policymakers led by President Christine Lagarde adopted for the first two moves of this easing cycle.
Adding to the argument for such a move is a likely slowdown in inflation last month to below the 2% target for the first time since mid-2021.
Officials do predict a reaceleration in price growth the next few months, and some worry that it won’t be sustainably at the ECB’s goal until late-2025. Hawks warn that wage growth — and, as a result, services prices — still pose upside risks. Such concerns could yet persuade policymakers to wait until December.
What Bloomberg Economics Says:
“The ECB will probably reduce rates by 25 basis points in October before cutting again in December by the same amount. Underlying price pressures in the euro area are swiftly abating and survey data indicate the economy is losing momentum. Add in Germany’s industrial malaise and resistance to additional monetary easing from the hawks on the Governing Council seems to have faded.”
—David Powell
Bank of Japan
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Target rate (upper bound): 0.25%
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Bloomberg Economics forecast for end of 2024: 0.5%
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Bloomberg Economics forecast for end of 2025: 0.5%
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Market pricing: An almost 50% chance of a 15-basis point hike by the end of the year.
The key question for the Bank of Japan this quarter is whether it will raise borrowing costs in December. Governor Kazuo Ueda has recently stressed that he has time to consider the next hike, but he’ll increase rates if the economy performs in line with the BOJ’s outlook.
That’s been perceived as a signal that there will be no policy move in October, although December remains an open question.
Former Defense Minister Shigeru Ishiba is set to become Japan’s next prime minister, a development that provides relief for the BOJ after he narrowly beat out an opponent who said a rate hike now would be “stupid.”
Still, Governor Ueda will be losing the support of current Prime Minister Fumio Kishida, who handpicked him last year. BOJ watchers will be closely following whether Ueda can build a cordial relationship with Japan’s new leader, given the bank’s history with political pressure.
What Bloomberg Economics Says:
“The BOJ is slow-walking its next rate hike, waiting to see how the US economy holds up. Come January, it will be ready to deliver a series of increases. With wages and prices heating up, and rates in very simulative territory, inflation will stick around its 2% target — giving it the go-ahead. We see three 25-bp hikes next year — in January, April and July — taking the rate up to 1.0% from 0.25%.”
—Taro Kimura
Bank of England
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Current bank rate: 5%
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Bloomberg Economics forecast for end of 2024: 4.75%
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Bloomberg Economics forecast for end of 2025: 3.75%
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Market pricing: A quarter-point cut in November and an almost 50% chance of another in December.
Voting against a second rate cut in September, the BOE signaled it’s not letting the foot off the brake just yet. Officials vowed to take a cautious approach on the way down, stressing that policy has to remain “restrictive for sufficiently long.”
The economic recovery is losing momentum, while sticky inflation gauges are cooling down. Minimum wage increases could complicate matters if they heat up pay growth next year.
A November move is still on the table. By then, the BOE will have updated forecasts and the new Labour government’s October budget at hand.
The BOE is due to give an update of its shake-up after Ben Bernanke’s review of its forecasting and messaging by the end of this year. It will then start implement these changes, phasing them in gradually.
What Bloomberg Economics Says:
“Sticky services inflation and the prospect of a fiscal loosening in the upcoming budget are likely to mean the BOE is cautious about how quickly it cuts rates going forward. We expect rates to be lowered again in November and for the BOE to stick to a quarterly pace through 2025. Signs of a slowing global economy suggest the risks are tilted toward the central bank moving more quickly than we expect.”
—Dan Hanson
Bank of Canada
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Current overnight lending rate: 4.25%
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Bloomberg Economics forecast for end of 2024: 3.75%
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Bloomberg Economics forecast for end of 2025: 2.75%
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Market pricing: A quarter-point cut in October, with a more than 50% chance of a half-point move. Another reduction in December is expected.
The Bank of Canada has achieved a major milestone in its fight against inflation — yearly price gains decelerated to the central bank’s 2% target in August. Still, Senior Deputy Governor Carolyn Rogers told Bloomberg that while that’s welcome news, the bank wants to see more progress on core inflation measures, and said the bank still needs to “stick the landing.”
At the September meeting, Governor Tiff Macklem told reporters that the governing council discussed scenarios wherein the central bank could either slow or accelerate the pace of rate cuts depending on the outlook for inflation and economic growth.
Markets put the odds of a half percentage point cut at about a coinflip for the October 23 meeting, but there’s still key employment and inflation reports to come that will guide whether the central bank needs to break from a gradual pace of monetary easing in order to prevent a hard landing scenario.
What Bloomberg Economics Says:
“Rapidly waning price pressures have allowed the Bank of Canada to maintain a steadier rate-cut pace than we expected. Weak first-half private-sector activity and headline inflation at the BoC’s 2.0% target allow policymakers to move faster toward the neutral rate — perhaps even before elections are scheduled. But with immigration driving population growth, swift rate cuts could reinvigorate home prices, risking a secondary inflation surge.”
—Stuart Paul
BRICS CENTRAL BANKS
People’s Bank of China
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Current 1-year medium-term lending rate: 2%
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Bloomberg Economics forecast for end of 2024: 2%
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Bloomberg Economics forecast for end of 2025: 1.6%
The PBOC issued the biggest round of stimulus for the economy last month since the pandemic, including lowering the one-year policy rate by the most ever and promising another cut in a shorter-term rate that officials increasingly favor.
The move, made amid growing anxiety among the official ranks and malaise among consumers (as well as notable downward revisions of economic growth from Wall Street) is likely not enough to boost growth long-term.
The challenges faced by authorities remain the same: households that are still holding back spending and deflation that threatens investment and sentiment.
Going forward, the central bank has more room to cut without incurring currency risk, now that the Fed has begun an easing cycle.
Economists broadly expect officials to do just that, using monetary policy in addition to fiscal tools in tackling the economic malaise.
What Bloomberg Economics Says:
“The People’s Bank of China’s stimulus package is eye-popping — ranging from cuts to rates and reserve requirements to providing liquidity to stock investors. Each step is significant. Delivering them together is unusual and speaks to the urgency felt in Beijing to head off deflationary risks and get growth on track for the 5% target.”
—Chang Shu
Reserve Bank of India
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Current RBI repurchase rate: 6.5%
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Bloomberg Economics forecast for end of 2024: 6.25%
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Bloomberg Economics forecast for end of 2025: 5.5%
The Reserve Bank of India is expected to keep its key rate unchanged at 6.5% in its October 7-9 policy review as inflation will probably climb back again to cross its target 4% in September, after staying below the mark in July and August.
While nearly 20 months of high borrowing cost has slowed inflation, Governor Shaktikanta Das wants to see more signs of price gains settling around the central bank’s target on a sustainable basis before considering a rate cut.
Voting for a reduction will also be difficult for the new members in the Monetary Policy Committee who succeed the three external members after their terms end on October 4. As such, most economists do not expect a pivot before December.
What Bloomberg Economics Says:
“The RBI’s hawkish hold has run out of reasons. Since its August review, 2Q GDP has surprised down, inflation has eased below target and Fed’s 50-bp cut has widened the policy rate differential. This should prompt the RBI to adopt a neutral stance and cut 25-bp in October on abating capital outflow fears. We see the RBI lowering its inflation outlook to 4.3% for fiscal 2025 from 4.5%, but keeping its growth outlook at 7.2% on prospects of a stronger rural recovery.”
—Abhishek Gupta
Central Bank of Brazil
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Current Selic target rate: 10.75%
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Bloomberg Economics forecast for end of 2024: 11.25%
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Bloomberg Economics forecast for end of 2025: 9.75%
Brazil’s central bank just lifted its rate for the first time since 2022, and investors now expect policymakers to accelerate a tightening campaign that is seen extending into early next year.
Latin America’s largest economy is growing above its potential, forcing policymakers to buck a global wave of monetary easing. A tight labor market is pressuring service costs as board members warn the disinflation process has been “interrupted.”
Adding to those concerns, investors are questioning President Luiz Inacio Lula da Silva’s commitment to a balanced budget, with greater public spending reinforcing bets of higher borrowing costs ahead.
Outgoing Governor Roberto Campos Neto has refrained from providing guidance, and he will soon be replaced by Monetary Policy Director Gabriel Galipolo, pending Senate approval.
What Bloomberg Economics Says:
“The BCB pointed to strong demand and a tight labor market when it hiked rates, but we think the main reason was to build an inflation-fighting reputation for incoming head Galipolo and other Lula-appointed board members. If that’s the case, the hike cycle will likely extend at least through Galipolo’s first few meetings in charge, with 25-basis-point moves. We see a peak rate of 11.75% in March, before gradual easing starts around midyear.”
—Adriana Dupita
Bank of Russia
The Bank of Russia may return its key rate to the 20% level last reached in an emergency increase following President Vladimir Putin’s February 2022 invasion of Ukraine.
After hiking by 100 basis points to 19% in September, Governor Elvira Nabiullina said underlying inflation remains “intolerably high” and held open the prospect of a further increase at the bank’s Oct. 25 meeting.
She noted that declining oil prices linked to slowing global economic growth are “pro-inflationary” for Russia.
With price growth still running at more than double the 4% target, Nabiullina said the bank would keep monetary conditions tight “for as long as necessary” to return inflation to the goal in 2025.
What Bloomberg Economics Says:
“The Bank of Russia’s policy rate will peak by the end of 2024, possibly as high as 22%. The central bank’s guidance remains markedly hawkish as the institution is struggling to rebuild credibility dented by five years of inflation running above the 4% target.
The central bank’s task is complicated by growing public spending. The government is focused on boosting military recruitment and industry output, which is keeping the fiscal impulse strong.”
—Alexander Isakov
South African Reserve Bank
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Current repo average rate: 8%
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Bloomberg Economics forecast for end of 2024: 7.75%
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Bloomberg Economics forecast for end of 2025: 7.5%
A strong currency, softer oil prices, and an improved inflation outlook suggest policymakers at the South African Reserve Bank will likely lower borrowing costs by a another quarter-point to 7.75% at their final meeting of the year in November.
The SARB started easing in September after holding the benchmark rate at 8.25% for more than a year.
Analysts are divided on how long and deep the loosening cycle will be, with one expecting 150 basis points of adjustment and others two more quarter-point moves.
Governor Lesetja Kganyago has remained resolute that future decisions will be data dependent. The central bank’s own forecasts show the policy rate declining to 7.17% by the end of next year and 7.09% in 2025 after adjustments to its consumer-price outlook. Inflation is now seen slowing to 4% in 2025, from a prior forecast of 4.4%.
What Bloomberg Economics Says:
“The South African Reserve Bank’s easing cycle, which started on Sept. 19, will likely bring rates down to neutral by the second quarter of 2025. It will then put it on hold. Inflation has fallen below the mid-point of the SARB’s 3%-6% target, where policymakers would like it anchored. For the next several months, inflation should remain steady on lower oil prices, a firmer rand, and a better harvest. That should support two 25-basis-point cuts over the next six months.”
—Yvonne Mhango
MINT CENTRAL BANKS
Banco de Mexico
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Current overnight rate: 10.5%
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Bloomberg Economics forecast for end of 2024: 10%
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Bloomberg Economics forecast for end of 2025: 8%
Banco de Mexico’s September cut opened the door to additional easing before the end of the year.
President-elect Claudia Sheinbaum takes power on October 1 and political noise led to volatility in the peso, as the country’s newly anointed congress passed legislation to overhaul the judicial system. But the five-member board’s decision to lower the rate a quarter-point suggested that would not be a deterrent.
The Mexican economy is slowing and inflation is now closer to the bank’s target range, opening the door to talk of more cuts.
The central bank predicts the economy will grow 1.5% this year, a downward revision of its prior forecast, as the US, Mexico’s No. 1 trade partner, shows signs of weakness. Banxico Governor Victoria Rodriguez has been a proponent of gradual changes to the reference rate.
What Bloomberg Economics Says:
“Decelerating domestic demand and increasing economic slack signal inflation will continue slowing into next year. Policymakers have acknowledged inflation remains high and there are risks to its descent, but most agree monetary conditions are too tight and see room to cut rates. The Fed’s outsize cut and forward guidance in September provides additional flexibility. We expect reductions in November and December, for a total of 125 basis points this year, followed by 200 basis points of cuts in 2025.”
—Felipe Hernandez
Bank Indonesia
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Current 7-day reverse repo rate: 6%
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Bloomberg Economics forecast for end of 2024: 5.5%
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Bloomberg Economics forecast for end of 2025: 4.5%
Bank Indonesia is expected to ease monetary policy further in the fourth quarter, after it delivered a surprise rate cut in September.
The rupiah is trading around the key psychological level of 15,000 against the dollar, and is expected to remain strong now that the Fed and other major central banks have pivoted.
The easing should help boost the momentum of Southeast Asia’s largest economy, which is starting to get dragged down by weakening consumer sentiment, manufacturing activity and bank lending.
It should also help incoming President Prabowo Subianto achieve his goal of powering growth to a world-beating pace of 8% when he starts his five-year term this month.
What Bloomberg Economics Says:
“Bank Indonesia is likely to mirror the Fed’s rate cuts in the fourth quarter. This will maintain the rate differential – and sustain support for the rupiah, which it’s worked hard to prop up. Capital inflows will be vulnerable to market concerns that a US hard landing can’t be avoided as the US labor market cools further. Another potential strain for the currency is that fiscal policy won’t be as prudent under Prabowo, who takes the helm in October.”
—Tamara Henderson
Central Bank of Turkey
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Current 1-week repo rate: 50%
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Bloomberg Economics forecast for end of 2024: 45%
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Bloomberg Economics forecast for end of 2025: 25%
Economists and investors are debating the timing of Turkey’s first cut after the country’s aggressive tightening cycle lifted its rate to 50% from single digits in less than a year.
The central bank has left benchmark borrowing cost at 50% for the last six meetings in order to cool 52% inflation to its target of around 38% at the end of this year.
The economy is showing signs of slowing, and domestic demand, the main driver of hot prices, is normalizing, according to officials.
Increasingly more investors are saying a rate cut could come in November, though some think it could be delayed to early next year. The course of policy will be data-driven, with the central bank focusing on inflation expectations of corporates and households, and monthly inflation.
What Bloomberg Economics Says:
“The CBRT is continuing to tighten through its alternative tools even as it gets ready to kick off an easing cycle in 4Q. We see the policymakers’ criteria on inflation expectations and momentum pointing to November for that first step lower, taking the policy rate to 45% by year-end. Upside risks dominate the inflation outlook, which could delay some of those cuts we’ve pencilled in for this year into 2025.”
—Selva Bahar Baziki
Central Bank of Nigeria
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Current central bank rate: 27.25%
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Bloomberg Economics forecast for end of 2024: 27.75%
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Bloomberg Economics forecast for end of 2025: 24.75%
Nigeria’s policymakers surprised with a half-point hike on Sept. 24, despite annual inflation easing to a six-month low in August.
Governor Olayemi Cardoso said the central bank remains concerned by elevated prices and the expected impact of a steep 45% increase in the cost of gasoline and floods that the United Nations estimates wiped out six-months’ worth of food for an estimated 8.5 million people.
He also said the central bank wants a positive inflation-adjusted interest rate to attract investment into the economy, suggesting more rate hikes could be on the way unless there’s a drastic slowdown in inflation. The differential between inflation and the key rate is 490 basis points.
What Bloomberg Economics Says:
“Nigeria’s surprise rate hike on Sept. 24 reveals the central bank remains worried about rising risk of inflation, not least from energy prices, and focused on restoring positive real rates. Policymakers increased rates by 50 basis points to 27.25%. And they’re not done. A couple of more quarters in this hiking cycle will help bring inflation (currently at 32.2%) below 30% in 1Q25 — also helped by a high base effect — and return real rates to positive territory.”
—Yvonne Mhango
OTHER G-20 CENTRAL BANKS
Bank of Korea
The Bank of Korea is on track to a policy pivot in October if the property market in Seoul cools as it hopes by then.
The board is worried a rate cut may throw fuel to a recovery in home prices and spur more mortgage loans that would aggravate the nation’s household debt, which stands at one of the highest levels in the world.
An inflation slowdown, however, supports the case for a pivot, and a half-point cut by the Fed has eased currency concerns for South Korea.
Lackluster consumption and lingering credit risks in the construction industry are other reasons the BOK may cut its rate on Oct. 11 after holding it at 3.5% since early 2023.
What Bloomberg Economics Says:
“The Bank of Korea is gearing up to kick off an easing cycle with inflation already at its 2% target and domestic demand sluggish. Concerns about rising property prices and household debt are the last hurdle. There are early signs that tighter regulation is beginning to rein in debt growth. We therefore see cuts starting in October, and the BOK will ease only gradually due to worries about financial stability risks. A second cut is likely to follow in 1Q25.”
—Hyosung Kwon
Reserve Bank of Australia
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Current cash rate target: 4.35%
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Bloomberg Economics forecast for end of 2024: 4.1%
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Bloomberg Economics forecast for end of 2025: 3.1%
While most of the developed world has begun easing, Australia isn’t ready to embark on that path yet. Governor Michele Bullock has said it’s premature to discuss rate cuts yet, warning there is still upside risk to inflation.
The RBA increased rates by less than key developed-world counterparts during the 2022-23 tightening cycle and as a result is likely to have to keep them higher for longer to return inflation to target.
Economists believe the next move will be down, though not until 2025. Before its next meeting in November, the RBA will have seen a key third-quarter inflation reading; an unexpected decline in prices could finally lead it to pivot away from its hawkish stance.
What Bloomberg Economics Says:
“The RBA’s hawkish stance won’t last long. Cost-of-living subsidies have artificially pushed headline inflation back inside the 2%-3% target band, but underlying inflation looks to be undershooting the central bank’s August projections. The 3Q inflation reading will be a make-or-break catalyst for the November decision. We still see a path to easing beginning as early as 4Q, particularly if consumer spending and the labor market show signs of softening.”
—James McIntyre
Central Bank of Argentina
While Argentina’s central bank hasn’t laid out guidance for borrowing costs, President Javier Milei has said annual inflation will slow to 18.3% by December 2025, meaning rates will become positive in real terms.
The monetary authority is keeping capital controls in place for now, and a concrete time-line for their removal remains elusive. Investors are paying close attention, given that any decision to roll back those restrictions would be a key step before the government returns to international debt markets.
Argentina’s central bank shifted into the second phase of Milei’s economic plan in late June when it announced it would migrate its debt to the Treasury. Until that point, the institution had been cutting rates aggressively — to 40% from 133% in December — to reduce its liabilities.
What Bloomberg Economics Says:
“Argentina kept its policy rate stable at 40% and held the monthly peso crawl at 2% for several months. That may change when President Milei eases or lifts currency controls. Doing so likely requires high, positive real rates and, with reserves low, a shift to a more flexible exchange-rate arrangement. Our base case is for this to happen between late 2024 and early 2025, in time for Argentina to tap markets and meet external bond payments due in January.”
—Adriana Dupita
G-10 CURRENCIES AND EAST EUROPE ECONOMIES
Swiss National Bank
The SNB started to cut rates already in March, before bigger peers switched to easing. It has now delivered three quarter-point reductions, and incoming president Martin Schlegel last week hinted that there could be more to come.
With inflation at 1.1% and predicted to fall further, policymakers are fighting to contain the persistently strong franc, which suppresses price pressures by making imported goods cheaper. Some economists already warn consumer-price growth might go below the SNB’s 0-2% target range.
If rates in the neighboring euro area drop more than expected before officials’ next scheduled meeting in December, that could further boost the Swiss currency’s strength and increase the likelihood of foreign-exchange interventions, a policy the SNB embraced before.
What Bloomberg Economics Says:
“The SNB lowered rates for the third time by 25 basis points in September as it tried to strike a balance between staving off immediate upside pressures on the franc and preserving space for further cuts as easing cycles progress elsewhere. We expect another cut in December, to 0.75%. This would be somewhat below the SNB’s estimate of neutral and policymakers will proceed cautiously beyond that, but the central bank has clearly kept further easing on the table.”
—Maeva Cousin
Sveriges Riksbank
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Current policy rate: 3.25%
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Bloomberg Economics forecast for end of 2024: 2.75%
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Bloomberg Economics forecast for end of 2025: 2%
Sweden’s central bank took a decisive step toward more dovish policy last week, indicating that its next move could take the policy rate half a percentage point lower.
That would mark a departure from the quarter-point cuts it has deployed three times already this year.
Riksbank Governor Erik Thedeen and his deputies are set to announce their next decision on monetary policy on November 7, and by then they will have access to data on price increases in September, as well as an early indication of economic growth in the third quarter.
While Thedeen was reluctant to indicate what may determine the size of the next cut, the bank can increase its focus on the health of the economy, as inflation expected to remain clearly below the 2% target through most of next year.
Should the current lacklustre demand situation persist, or worsen, pressure will increase on the world’s oldest central bank to move faster toward a rate level that doesn’t hold back growth.
What Bloomberg Economics Says:
“The Riksbank will continue its cutting spree as inflation is safely under wraps under the 2% target through late 2025 alongside sluggish activity and a weak labor market where wage hike expectations remain modest. We expect the policymakers to trim the policy rate in the remaining two meetings to a year-end reading of 2.75%. Given the dovish shift in the global backdrop, risks are tilted towards a front-loaded single jumbo cut.”
—Selva Bahar Baziki
Norges Bank
Norway’s central bank is having a harder time taming inflation than most its developed-world peers, largely due to the weaker-than-projected krone feeding imported price growth and underpinning wage pressures.
Norwegian officials are poised to keep borrowing costs at an almost 16-year high of 4.5% until the first quarter of 2025, according to their latest outlook.
Even after inflation slowed more this year than the central bank forecast, policymakers still don’t see their 2%-target being achieved even by 2027.
Uncertainty related to krone, the weakest performer so far this year among the Group of 10 major currencies, is a key factor behind the cautious stance of Governor Ida Wolden Bache and colleagues. While the energy-rich economy has barely grown in past months, and a lower oil price also supports earlier easing, Norges Bank is likely to remain among the last in the rich world to cut rates.
Reserve Bank of New Zealand
The RBNZ reacted to stalling economic growth by starting to ease policy in August, and this will continue in the fourth quarter.
The only uncertainty is the pace of declines, with most economists expecting quarter-point reductions at the two remaining meetings this year — in line with Governor Adrian Orr’s pledge to move at a measured pace.
However, some observers argue the Official Cash Rate needs to get back to neutral more quickly than the RBNZ projects, and swaps pricing signals one half-point cut before year end.
Key to the decisions will be data this month (Oct 16) which the RBNZ expects will show that inflation slowed to 2.3% — inside its 1-3% target for the first time in more than three years.
What Bloomberg Economics Says:
“The Reserve Bank of New Zealand needs to pick up the pace of its rate cuts. The economy has resumed contracting, the labor market is deteriorating faster than expected, and monthly price indicators suggest inflation could dramatically undershoot the central bank’s forecasts. We expect a 200-basis-point reduction in the Overnight Cash Rate by 3Q25, almost double the RBNZ’s projection of 115 basis points of cuts over the same period.”
—James McIntyre
National Bank of Poland
Poland’s central bank has kept rates unchanged for a year, as inflation has picked up in July after the government started to phase out crisis measures, including a cap on energy prices.
With consumer prices expected to peak at the start of next year and later slow down, more and more policymakers have signalled that a monetary easing discussion will start early in 2025.
Governor Adam Glapinski unexpectedly brought 2025 rate cuts back onto the agenda in September, saying that easing is possible around the middle of next year if inflation stays under control.
Glapinski faces an unprecedented parliamentary probe, launched by the ruling coalition, which has accused the governor of irregularities over a bond-buying programme, among other things. While Glapinski denies any wrongdoing, first witnesses in the probe are expected to provide their testimonies this year.
What Bloomberg Economics Says:
“Moderate inflation, a streak of downside surprises in activity and a decline in the ECB and Fed rates will convince the National Bank of Poland to start cutting the reference rate in 1Q25. For the rest of 2024 the rate is likely to remain at 5.75%.
We believe money markets are right in estimating that policy makers will want to see inflation peak at around 6% year on year in December before delivering an initial 25-basis-point rate cut.”
—Alexander Isakov
Czech National Bank
The Czech central bank left the door open for more rate cuts in the fourth quarter, after bringing the benchmark down by a cumulative 275 basis points in seven meetings.
Market prices indicate investors betting on rates declining by another half of a percentage point through December, and dropping further to around 3% next year.
Governor Ales Michl refrained from giving specific guidance on future rate path, but said policymakers will “carefully” consider their next steps as they weigh persistent price pressures in services against weak economic growth.
“We are trying to prevent inflation in the Czech Republic from rising again,” Michl said after the latest quarter-point reduction on Sept. 25.
–With assistance from Manuela Tobias, Matthew Malinowski, Monique Vanek, Nduka Orjinmo, Ntando Thukwana, Agnieszka Barteczko, Peter Laca, Niclas Rolander, Beril Akman, Tracy Withers, Scott Johnson (Economist), Irina Anghel, Tony Halpin, Ott Ummelas, Anup Roy, Toru Fujioka, Swati Pandey, Andrew Langley, Aline Oyamada, Bastian Benrath-Wright, Matthew Boesler, Claire Jiao, Maya Averbuch, Amara Omeokwe, Erik Hertzberg and Maria Eloisa Capurro.
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