The European Central Bank holds interest rates and hints at the end of the monetary tightening cycle Economy

The European Central Bank kept interest rates unchanged at a record high on Thursday, but sent a clearer signal that it may be preparing to cut them as inflation in the euro zone continues to decline.

The central bank of the twenty countries that deal with the single European currency (euro) kept the interest rate on deposits at 4%, as has been the case since last September, as part of an ongoing effort for a year and a half to curb the rise in prices.

But with inflation now approaching the European Central Bank's 2% target, bank lending stalling and the economy barely growing, the ECB has issued new hints about a possible rate cut at its next meeting.

The ECB said: “If the Governing Council’s updated assessment of inflation expectations, core inflation movements and the strength of monetary policy leverage increases its confidence that inflation is consistently heading towards target, it would be appropriate to reduce the current level of monetary policy restrictions.”

The end of monetary tightening

Reuters indicated in a report that the major central banks have ended the historic monetary tightening cycle, but expectations vary as to who will reduce interest rates next, and to what extent.

The markets – which a month ago expected a coordinated interest rate cut in June – entered a state of chaos as yesterday's US inflation data pushed expectations for the US Federal Reserve's first (central bank) cut to September.

Switzerland

The Swiss National Bank cut interest rates by 25 basis points to 1.50% in March, a surprise move that helped push the franc to its lowest levels in 10 months against the euro.

This was the first rate cut by the SNB in ​​nine years and with inflation remaining within the target range between 0 and 2% for several months, traders are anticipating another quarter-point rate at the bank's June 20 meeting.

Sweden

The Riksbank kept its key interest rate steady at 4% in March and indicated that if inflation continues to fall towards its 2% target, a series of interest rate cuts could begin in May.

Markets are viewing the Riksbank's May 7 cut as a currency toss after Governor Erik Thedén warned that a weak Swedish krona could push inflation higher.

Canada

The Bank of Canada left interest rates unchanged at 5% on Wednesday, but gave strong indications that it is ready to cut rates, and financial markets expect a cut in July, with a roughly 50% chance of a move in June.

The Bank of Canada lowered its economic growth forecast for 2025 from 2.4% to 2.2%, and said that inflation will reach its target next year.

Britain

The Bank of England kept interest rates at a 16-year high of 5.25% in March, and Governor Andrew Bailey said the economy was “moving in the right direction” for cuts.

But policymakers at the Bank of England are divided, opening a new door on when to ease monetary policy, and traders expect the Bank of England to start reducing borrowing costs by August.

New Zealand

After the Reserve Bank of New Zealand kept interest rates at its highest level in 15 years at 5.5% yesterday, investors stuck to their bets on a cut next August.

After interest rates rose by 525 basis points since October 2021, New Zealand has entered a recession.

America

The US Federal Reserve has kept interest in the range of 5.25% to 5.5% since July 2023, and in March it reaffirmed its expectations for three cuts of 25 basis points this year.

But traders now expect the central bank to cut rates much less than it said it would just a month ago, due to hot March inflation data on Wednesday.

Hours before the release of this US inflation data report, which followed strong US jobs data, traders were anticipating 67 basis points of cuts from the Fed this year with 50-50 odds of a first move in June.

Australia

The Reserve Bank of Australia kept interest rates at a 12-year high of 4.35% in March as the economy slowed.

Investors are debating whether the RBA will raise rates again, as tax cuts and a tight labor market threaten to raise inflation, and markets expect only a 20 basis point cut this year and the RBA to remain on hold until at least November.

Norway

Norway's central bank left rates unchanged at 4.50% in March, and Governor Ida Wolden Bache expects just one cut this year, with markets pricing it as more likely for November.

Inflation in Norway fell more than expected in March, to 3.9%, but risks are rising again due to strong wage growth and a positive economic outlook.