Big year of central bank easing wraps up with dovish BoE, Fed caution

By Alun John, Naomi Rovnick and Samuel Indyk

LONDON (Reuters) - The Bank of England wrapped up a big year of central bank rate cuts by keeping rates steady on Thursday, a day after the Federal Reserve eased policy but suggested it would be more cautious in 2025.

Seven of the world's 10 major, developed-market central banks cut rates this year, with only Australia and Norway still on hold. Japan, the outlier, is in hiking mode.

1/ SWITZERLAND

The Swiss National Bank, which has been at the forefront of monetary easing, cut rates by an unexpectedly large 50 basis points (bps) to 0.5% last week, the lowest since November 2022 and the bank's biggest reduction in almost a decade.

Swiss annual inflation was most recently reported at just 0.7% and the SNB, which is alert to the safe-haven Swiss franc strengthening beyond levels domestic exporters can bear, said it could reduce borrowing costs again next year.

2/ CANADA

The Bank of Canada also cut rates by 50 bps to 3.25% last week, marking the first time since the COVID-19 outbreak that it has implemented consecutive half-point cuts.

It indicated further easing would be gradual after annual inflation accelerated to 2%, but with Canada's weak economy threatened by U.S. President-elect Donald Trump's proposed tariffs, markets placed 50% odds on a 25-bps cut next month.

3/ SWEDEN

Sweden's Riksbank cut rates by a quarter-point to 2.5% on Thursday, in line with expectations, but signalled it can slow its easing pace in early 2025 after 150 bps of cuts so far this year.

The central bank said it favours a more tentative approach - noting that monetary policy affects the economy with a lag.

4/ NEW ZEALAND

New Zealand's economy sank into recession in the third quarter, Thursday data showed, a dire result that cements the case for more aggressive rate cuts.

The Reserve Bank of New Zealand next meets in February and its governor says there is scope for a 50-bps cut.

It has lowered its cash rate by 125 bps to 4.25% so far this cycle and markets are pricing around another 100 bps of cuts by the middle of next year.

5/ EURO ZONE

The ECB is firmly in easing mode, cutting its deposit rate by 25 bps to 3% last week in its fourth such move this year and keeping the door open to further reductions.

It also signalled that further cuts are possible by removing a reference to keeping rates "sufficiently restrictive", economic jargon for a level of borrowing costs that curbs economic growth.

Markets price in roughly 110 bps worth of further tightening by end-2025.

6/ UNITED STATES

The Federal Reserve cut rates on Wednesday, as expected, but Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation.

That jolted markets, sending stocks down sharply and bond yields higher as investors dialled back expectations of rate cuts for 2025.

7/ BRITAIN

The Bank of England kept its main interest rate unchanged at 4.75% on Thursday but policymakers became more divided about whether rate cuts were needed to tackle a slowing economy.

The more dovish tone sparked a rally in UK government bond prices, pushing yields down. Still, markets price in less than a 50% chance of a 25-bps rate cut when the BoE next meets in February.

8/ NORWAY

Norway's central bank held its policy rate steady at a 16-year high of 4.5% on Thursday.

Looking forward, the Norges Bank believes that while restrictive policy is still needed, the time to begin easing is approaching and it expects to start lowering borrowing costs in March next year.

9/ AUSTRALIA

The Reserve Bank of Australia held rates steady at a 12-year high of 4.35% last week but softened its tone on inflation, raising the market-implied probability of a quarter-point cut in February to more than 50%.

The RBA, which has not changed borrowing costs for more than a year, has taken note of a surprise economic growth slowdown as high rates deterred households from spending despite a recent round of tax cuts.

10/ JAPAN

The Bank of Japan, the only G10 central bank in a hiking cycle, kept interest rates unchanged on Thursday, as expected, but markets seized on remarks from governor Kazuo Ueda suggesting the BOJ preferred to wait for Spring wage data before moving again.

Investors had seen a January rate increase as likely, and their reassessment of this sent the yen and bond yields tumbling.

(Reporting by Alun John, Samuel Indyk and Naomi Rovnick; Editing by Dhara Ranasinghe and Andrew Heavens)