By Peter Bergman (MoneyAmped.com)
Switzerland leads the way in reducing interest rates among central banks in developed economies, once again lowering borrowing costs on Thursday. Meanwhile, the Federal Reserve, despite the strong U.S. economy, has yet to take any steps toward reducing rates.
After an exceptionally bold round of interest rate increases on a global scale, let’s take a look at the current positions of the world’s top central banks and their anticipated future actions:
Switzerland
Following the interest rate cut in March, the Swiss National Bank decided further to reduce the rate to 1.25% on Thursday. Some analysts were taken aback by the slight decrease, considering the recent improvement in Swiss economic growth and a slight uptick in inflation to 1.4% in April.
The Swiss franc had been trading at a peak for the past three months but declined over 0.5% against the US dollar following the announcement.
Sweden
The Riksbank of Sweden reduced interest rates from 4% to 3.75% in May and anticipates maintaining this level in its rate decision on June 27.
The inflation rate in May increased by a greater-than-anticipated 2.3% compared to the previous year. However, it has significantly decreased from its peak of more than 10% in 2022. Market analysts still anticipate additional measures to be taken to alleviate inflationary pressures further.
The Riksbank anticipates implementing two additional reductions within the current year.
Canada
In June, the Bank of Canada became the first G7 nation to reduce interest rates. They lowered the benchmark borrowing costs by 25 basis points to 4.75% and assured that further easing would occur.
Many anticipated the Bank of Canada’s decision to lower interest rates for the first time in four years due to the decrease in inflation to its lowest level in three years, standing at 2.7% in April. Traders anticipate that there will be two additional 25 basis point reductions before the end of the year.
Eurozone
On June 6, the ECB decided to reduce rates for the first time in five years, bringing down its historically high deposit rate by 25 basis points to 3.75%.
However, the ECB has revised its inflation projections upwards and is quick to lower interest rates once more. Market participants have factored in an additional 40 basis points of interest rate reductions by the end of the year.
Great Britain
The Bank of England decided to keep rates unchanged at a 16-year high of 5.25% on Thursday, just before the upcoming July 4 election. However, a few policymakers expressed that their decision not to reduce rates was now a matter of careful consideration.
Money markets are factoring in nearly 50 basis points of cuts by the end of the year, along with an approximately 44% probability of a quarter-point adjustment at the upcoming meeting in August, which is higher than the 32% probability recorded just a day ago.
The United States
On June 12, the Federal Reserve maintained interest rates within the range of 5.25% to 5.5%. Policymakers have revised their outlook and now anticipate only a single rate cut for the remainder of the year, a decrease from the previous projection of three cuts in March.
Traders have a positive outlook and have factored in approximately 45 basis points of rate cuts for 2024. This is due to the decrease in inflation to 3.3% in April and May, which has boosted their confidence.
New Zealand
According to money market pricing, investors believe there is a possibility of the Reserve Bank of New Zealand reducing rates in October.
The elevated rates have significantly impacted the New Zealand economy. However, during its May meeting, the central bank placed a strong emphasis on addressing inflation, which stood at 4% in the initial quarter.
Australia
The Reserve Bank of Australia has maintained interest rates at a significant level of 4.35% since November, and there are no indications of a decrease in borrowing costs until a considerable time in 2025.
In April, the consumer inflation rate in Australia surprisingly rose to its highest level in five months, reaching 3.6% year over year.
Norway
The Central Bank of Norway decided to maintain interest rates at 4.5% on Thursday, and they indicated that it is highly probable that borrowing costs will remain at this level until 2024.
Core inflation was recorded at 4.1% in May, indicating that significant inflationary forces are still at work.
Japan
The Bank of Japan stands apart from the rest, as it increased rates from negative territory in March, marking its first hike in 17 years.
On June 14, the central bank decided to keep rates unchanged. However, it announced its intention to gradually reduce its substantial bond purchases as part of its efforts to restore monetary policy to a more conventional state.
BOJ Governor Kazuo Ueda stated on Tuesday that the central bank might consider increasing interest rates in July, provided that the economic data supports such a decision.
