Introduction to Interest Rate Cuts
In 2025, central banks of major developed economies worldwide have been implementing interest rate cuts at the fastest pace and largest scale seen since the financial crisis. This move is aimed at stimulating economic growth and managing inflation. Policymakers in developing countries are also accelerating their accommodative measures.
G10 Central Banks’ Actions
The G10 central banks, which represent the ten most actively traded currencies globally, have played a significant role in this effort. Among them, nine have lowered their benchmark interest rates in 2025. These banks include the Federal Reserve, European Central Bank, Bank of England, Reserve Bank of Australia, Reserve Bank of New Zealand, Bank of Canada, Sveriges Riksbank, Norges Bank, and Swiss National Bank.
Cumulative Easing Effort
Collectively, the G10 central banks have implemented 32 interest rate cuts this year, with a cumulative easing magnitude of 850 basis points. This marks the highest number of rate cuts since 2008 and the most substantial easing effort since 2009. The Bank of Japan was the sole exception among the G10 central banks this year, having raised interest rates twice.
Shift in Monetary Policy Tone
Some analysts anticipate that the monetary policies of these major central banks could undergo a significant turning point in 2026. They highlighted that several G10 central banks have already demonstrated a clear shift in tone, hinting at the possibility of future interest rate hikes. James Rossiter, Head of Global Macro Strategy at TD Securities, stated that the European Central Bank will likely raise interest rates next year, and both the Reserve Bank of Australia and the Bank of Canada will approach raising rates.
Federal Reserve’s Stance
The Federal Reserve is grappling with the complex interplay between labor market dynamics and inflationary trends. Luis Oganes, Head of Global Macro Research at JPMorgan, pointed out that the Federal Reserve may change its stance in 2026, particularly in the second half of the year when more pronounced two-way risks are expected to emerge.
Emerging Markets’ Rate Cuts
By contrast, in emerging markets, rate cuts remained concentrated in December. Among the 18 developing economies surveyed, eight of the 14 central banks that held meetings this month implemented rate cuts, totaling a reduction of 350 basis points. This wave of rate cuts at year-end brought the total reduction in interest rates for emerging economies in 2025 to 3,085 basis points, far exceeding the 2,160 basis points in 2024.
Expectations for 2026
Analysts expect emerging economies to further ease policies next year. Elina Theodorakopoulou, Managing Director at Manulife Asset Management, stated that many emerging markets still have the conditions to initiate a rate-cutting cycle, with countries such as Brazil and Hungary likely to take the lead.
Conclusion
In conclusion, the G10 central banks have implemented significant interest rate cuts in 2025, with a cumulative easing magnitude of 850 basis points. While some analysts expect a shift in monetary policy tone in 2026, emerging markets are likely to continue easing policies. As the global economy navigates complex challenges, central banks will play a crucial role in managing inflation and stimulating growth.
