Central Bank Tracker: The number of rate cutters continued to grow in August

 Trusted Insights for What's Ahead ^(TM)

• The gradual swing in developed market (DM) monetary policy continued in August. Last month, the Bank of England, Sweden’s Riksbank, and New Zealand’s RBNZ made three more interest rate cuts, bringing the total number of cuts by the major 12 DM central banks The Conference Board follows regularly to nine.
• 50% of DM central banks are now in a rate-cutting cycle. The Bank of England and New Zealand’s RBNZ increases the ranks of rate cutters to six. Meanwhile, Sweden’s Riksbank became the third repeat rate cutter, further evidence that we are moving into an environment of repeated and prolonged rate cuts. Lower financing costs and less restrictive financial conditions should contribute to improved developed world growth prospects in 2025.

• The Conference Board developed market monetary policy rate average still has not progressed much. The (GDP-weighted) DM central bank policy rate average declined two basis points following the Bank of England’s and the Riksbank’s interest rate cuts last month. At 4.11% at the end of August, the DM average is still not showing a noticeable downward momentum. Meanwhile, with data available through the end of July, the GDP-weighted DM inflation average remains in a moderate downward trend.  

 Three more rate cuts in August support the ‘Shifting Monetary Policy Winds’ narrative

• The Bank of England cut policy rates by 25 basis points to 5.00% during their August 1^st meeting. The decision was close, with five of the nine Monetary Policy Committee (MPC) members voting for a rate cut; the other four preferred to leave rates unchanged. UK inflation has slowed to the bank's 2% target. Yet, the gap between deflationary annual goods inflation (-1.4% during June) and still elevated services inflation (+5.7%) remains wide, and the bank expects headline inflation to pick up again over the remainder of the year. Despite that, the policy statement highlighted the MPC’s view that “it is now appropriate to reduce slightly the degree of policy restrictiveness.”

• The Reserve Bank of Australia (RBA) left policy rates unchanged at 4.35% and remained in the camp of central banks that have not cut rates yet. At 0.9%, Australian real policy rates remain below the 1.4% GDP-weighted DM average, indicating that monetary policy is not as restrictive as that in most of its peers. The policy statement showed the bank still very much concerned about inflation, calling it “above target and [..] proving persistent.”

• The Reserve Bank of New Zealand (RBNZ) cut policy rates by 25 basis points to 5.25%. It was the bank’s first rate cut, leaving the Federal Reserve with the highest policy rates among the major DM central banks. New Zealand’s inflation rate fell to 3.3% in Q2, but it is still the second-highest rate among the 12 major DM economies. Since the RBNZ is operating with a +/- 1% band around its 2% inflation target, the bank can say that “inflation is [close to] returning to within the Monetary Policy Committee’s 1 to 3 percent target band”. New Zealand’s real policy rates at 1.9% are still relatively high, suggesting there is room for further rate cuts, but the bank is likely to proceed slowly and cautiously. 

• Sweden’s Riksbank cut policy rates by 25 basis points to 3.50% at their August meeting. It was the bank’s second interest rate cut since starting the rate-cutting cycle in May. Swedish real policy rates at 1.8% remain relatively high, partly because Sweden’s inflation rate has fallen to 1.7%. That suggests ample room for the Riksbank to cut rates further in the coming months, which the bank’s policy statement acknowledged by stating that “if the inflation outlook remains the same, the policy rate can be cut two or three more times this year.”    

• Norway’s Norgesbank left policy rates unchanged at 4.50%. Norwegian real interest rates at 1.7% remain well above the 0% - 1% neutral range, suggesting the bank has room to cut rates once conditions are deemed right. However, Norgesbank’s policy statement maintained a more cautious tone. It acknowledged that inflation has improved, but labor markets remain tight, and “the rapid rise in business costs will likely slow further disinflation.”

• The Bank of Korea (BOK) left policy rates unchanged at 3.50%. Real policy rates at 1% suggest the bank is not far from neutral and, therefore, not in a rush to ease. The policy statement pointed to concerns about government measures that could stimulate the local housing market as one reason to stay on hold.   

The pace of interest rate cuts should start to gather even more pace in September

September will be an extremely busy month for central bank watchers. The highlight is the FOMC meeting (Sep 19), where the Fed is widely expected to join the group of rate cutters. U.S. real policy rates are still well over 2% (2^nd highest among the key DM central banks), indicating monetary policy conditions remain very restrictive. Plus, Chair Powell strongly hinted at a rate cut in his speech at the Fed’s annual Jackson Hole symposium in August, where he said: “the time has come for policy to adjust.”

Also on the calendar in September are the ECB (Sep 12) and Bank of England (Sep 19). Both banks have already started to cut rates – the ECB in June and the Bank of England in August. UK real policy rates at 2.8% are the highest among the 12 DM central banks, suggesting ample room to adjust the degree of policy restrictiveness. The ECB is facing a weak growth backdrop and a fiscal policy that is becoming more restrictive due to the reinstatement of EU deficit rules.   

Meanwhile, the Bank of Japan (Sep 20) is still considering further rate increases as long as inflation remains above its 2% target. However, the sharp yen appreciation since the bank’s last meeting and concerns about the rapid unwinding of carry trades may prompt the bank to pause this month. In July, the BOJ also announced a slowdown in asset purchases that is expected to shrink the balance sheet by 7% - 8% by March 2026. So far, there is not much evidence of QT in Japan with the balance sheet reaching a new high at the end of August.    

And that is not all. We are also watching interest rate decisions by the Bank of Canada (Sep 4), Swiss National Bank (Sep 26), Norway’s Norgesbank (Sep 19), and Taiwan’s Central Bank of China (Sep 19).