Central Banks’ Rate Moves: Markets Brace for Impact

Tuesday, 10 December 2024, 05:30 – RBA Interest Rate Decision (Dec)

In November 2024, the Reserve Bank of Australia (RBA) decided to keep the cash rate at 4.35%. The bank’s reasoning was that while inflation had significantly decreased from its 2022 peak, it was still above the target range. Headline inflation dropped to 2.8% in the September quarter, but underlying inflation (measured by the trimmed mean) remained at 3.5%, still above the RBA’s 2-3% goal. This persistent inflation is driven by excess demand, especially in services like childcare, haircuts, and travel, despite falling fuel and electricity prices. The RBA noted that although economic growth is slow, the tight labor market is continuing to fuel inflationary pressures. Given that the RBA aims to keep monetary policy restrictive until inflation is consistently within target, a rate cut is not expected for the upcoming decision.

Wednesday, 11 December 2024, 15:30 – US CPI (YoY) (Nov)

The latest U.S. Consumer Price Index (CPI) for October 2024 showed a year-on-year increase of 2.6% which align with market expectation increase from previous month of 2.4%. This was driven primarily by the continued growth in food prices, which rose by 2.1%, and energy prices, which saw a decline of 4.9%. Shelter costs, up by 4.9%, and transportation services, especially motor vehicle insurance and airline fares, contributed significantly to the inflationary pressures in the services sector​. Following expected moderation in energy costs, particularly gasoline, it is expected that the upcoming release will remain somewhat stable or a slight decrease, though it may not be drastic enough to shift the overall inflation trajectory significantly.

Wednesday, 11 December 2024, 16:45 – BoC Interest Rate Decision

The latest Bank of Canada (BoC) interest rate decision, announced in October 2024, included a 50-basis-point cut, bringing the policy rate to 3.75%. This was a significant step aimed at sustaining economic growth as inflation returned to the 2% target. The decision was influenced by subdued GDP growth, a softening labor market, and easing shelter price inflation. Governor Tiff Macklem emphasized the need to maintain inflation around the 2% mark while providing relief to Canadian households and businesses. Looking ahead to the December 11, 2024, announcement, economists largely expect another rate cut, potentially 25 to 50 basis points. This expectation stems from a slowing economy and reduces inflationary pressures. However, there is some debate over the magnitude of the cut, given that recent data points to a relatively balanced economic outlook

Thursday, 12 December 2024, 10:30 – SNB Interest Rate Decision (Q4)

In September 2024, the Swiss National Bank (SNB) lowered its policy interest rate by 0.25 percentage points, reducing it from 1.25% to 1.00%. This marked the third rate cut of 2024, following similar reductions in March and June. The main driver for this move was persistently low inflation, which remained well below the SNB’s target of 2%. Other factors influencing the decision included the strength of the Swiss franc, falling global oil prices, and expected cuts in electricity costs starting in January 2025. Looking ahead, many analysts anticipate that the SNB will continue its easing cycle, with a potential 25 basis point cut in December, which would bring the policy rate to 0.75%. This expectation is based on the central bank’s updated inflation outlook, which points to modest inflation risks in the medium term.

Thursday, 12 December 2024, 15:15 – ECB Interest Rate Decision (Dec)

In October 2024, the European Central Bank (ECB) announced a 25 basis point reduction in key interest rates, marking the third consecutive cut since June. The main refinancing rate is now set at 3.40%, a move aimed at addressing slow economic growth and persistently low inflation. The ECB has adopted a data-dependent strategy, indicating that future rate decisions will be guided by inflation trends and overall economic performance. While inflation is expected to rise modestly in the short term due to energy price fluctuations, it is forecasted to return to the target in 2025. The ECB is likely to maintain a cautious approach, balancing growth stimulation with inflation control, and while further rate cuts remain possible, they are not assured.