A year in which the major central banks part ways

By Stefano Rebaudo

LONDON, Feb 5 (Reuters) – Central banks in big economies are parting ways, with Australia this week raising interest rates for the first time in two years, while others are taking a more cautious approach even if they are likely done with easing. 

The European Central Bank and Bank of England held rates on Thursday, although the UK decision was seen by markets as dovish. The U.S. Federal Reserve remains in the easing camp.

Here’s where central banks in 10 developed markets stand:

1/ UNITED STATES

The Fed left rates unchanged last month and suggested there could be a long wait before any further cuts.

Still, traders are fully pricing in one more 25 basis point cut by July.

Kevin Warsh, President Donald Trump’s nominee to replace Jerome Powell as Fed chair when his term ends in May, has called for rate cuts and a smaller balance sheet. That mix could steepen the U.S. Treasury yield curve but leaves the broader direction of rates uncertain.     

2/ BRITAIN

The BoE left rates unchanged on Thursday, but only after an unexpectedly narrow 5-4 vote, and argued more easing is a live option as wage growth loses steam. 

The surprise dovish tilt put policy-sensitive two-year gilt yields on track for their biggest daily fall since April 2024.

Traders now price in almost 50 bps of rate cuts by year-end, up from 35 bps before the rate decision.

3/ NORWAY

Norges Bank held its key rate at 4% last month and reiterated that cuts are likely later this year, though not imminent, with investors waiting on fresh economic forecasts in March.

Further easing, however, sits uneasily with the latest data. Norway’s core inflation rate rose unexpectedly to 3.1% year‑on‑year in December, underscoring resilient domestic demand.

4/ SWITZERLAND

At 0%, the Swiss National Bank has the lowest rate among the world’s major central banks, and it’s likely to stay that way for now. 

The SNB’s long‑term inflation projections remain within its 0–2% target range, but the bank faces an uncomfortable backdrop: price pressures are still subdued, while the safe‑haven Swiss franc is near multi‑year highs against the euro and the dollar.

It next meets on March 19.

5/ CANADA

The Bank of Canada left rates at 2.25% in January, with policymakers warning that elevated geopolitical risks and uncertainty around U.S. trade policy could deliver fresh shocks to the economy that warrant further monetary easing.

   Economic growth slowed in November after nearly a year of tariff and trade uncertainty, which has weighed on business sentiment, curbed investment and left many firms expecting layoffs.     

6/ EURO ZONE

The ECB held its key rate at 2% on Thursday, as expected, with traders not expecting any changes this year. 

Still, a recent tumble in the dollar, volatility in commodity markets, the Trump administration’s war of words over Greenland and its pressure on the Fed to cut rates, suggest that the situation could quickly change.         

7/ SWEDEN

Sweden’s central bank kept rates at 1.75% on January 29 and signalled that policy was likely to remain unchanged “for some time to come”.

Sweden’s economy is expected to pick up this year and inflation to cool, but geopolitical risks loom.

8/ NEW ZEALAND

New Zealand is moving into the hawkish camp. 

With annual inflation quickening to 3.1% in the fourth quarter, the Reserve Bank of New Zealand has likely ended its easing cycle. Markets are pricing in almost two 25 bps rate hikes by year-end.

It next meets on Feb 18.   

9/ AUSTRALIA

The Reserve Bank of Australia raised rates on Tuesday, just six months after its last cut in August.

Recent data pointing to strong consumer spending, record-high house prices and abundant credit for households and businesses reinforced concerns that financial conditions were far from restrictive.

Traders price in another hike by mid-year.

10/ JAPAN

The Bank of Japan was the only major central bank to stick with tightening as its peers eased. It is no longer an outlier. 

BOJ policymakers warn that a weak yen is feeding stronger-than-expected price pressures, with some cautioning that they risk falling “behind the curve.” 

The BOJ lifted rates in December to their highest in 30 years and then held steady in January. 

Prime Minister Sanae Takaichi’s dovish monetary and fiscal leanings could complicate the BOJ’s path, especially if she wins a strong mandate in Sunday’s snap election.         

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(Reporting by Stefano Rebaudo in Milan; Graphics by Sumanta Sen Editing by Dhara Ranasinghe and Kirsten Donovan)