Kavan Choksi UK Discusses the Global Monetary Policy Divergence Expected After Easing
The global financial landscape is shifting, characterized by a cycle of interest rate reductions by major central banks in both developed and emerging markets across the world. A number of monetary authorities have taken a more cautious approach over the last few months. The Fed is a great example of that, as it shifted its focus to inflation, as disinflation stalled and economic activity remained strong. The labor market conditions may shape the path of its future policy decisions. As per Kavan Choksi UK, the Bank of England and the European Central Bank also cut interest rates by 25 basis points in the third quarter of 2024. They emphasized on data dependency without pre-committing to any such interest rate trajectory.
Kavan Choksi UK briefly talks about global monetary policy divergence expected after easing
The Fed may stay neutral by the end of 2025 and improved growth prospects can delay further rate cuts. On the other hand, European central banks are gradually easing their policies, while having relatively weaker growth in comparison to the United Kingdom. While a cycle of rate cuts has been experienced across the world, there shall be noticeable divergences seen in the monetary policies of the major central banks down the line.
The Fed’s shift in strategy has refocused its attention on inflation. The policies of the newly elected president are also expected to impact the interest rate projections of the Fed. As of now, only two Fed rate cuts are expected in 2025. As Kavan Choksi UK mentions, the Bank of England and European Central Bank are observing insufficient growth and are cautious about the future interest rate path, especially due to high domestic and geopolitical uncertainties. The trajectory of monetary easing in Europe may rely on the weight placed by policymakers on the downside growth risks in comparison to the pace and progression of wage pressures and services inflation.
The Bank of Japan is somewhat an exception among developed markets, as it went on a rate hike cycle to end an era of negative interest rates. A cautious stance has to be maintained in regard to the Japanese rates. After all, the central bank may make further policy adjustments in response to currency pressures.
In 2025, many central banks are likely to become more cautious than they were a quarter ago. The Bank of Canada cut its benchmark rate by 50 basis points in December 2024 and that might be its last significant move for a while. The Riksbank of Sweden is also taking a more neutral stance. The Reserve Bank of New Zealand additionally may require fewer cuts than the current market expectations. The People’s Bank of China and the Swiss National Bank remain the most dovish. Norges Bank of Norway may lower rates in the first quarter of 2025, followed by the Reserve Bank of Australia. Both of these central banks were among the last to join the easing trend. In the meantime, the Bank of Japan would probably continue raising rates gradually in 2025, though the rigidity of inflation can provide the central bank with ample room to adopt a more aggressive stance.
