From prospective hikes in Canada, Japan and Switzerland, to steady borrowing costs in the euro zone, to cuts in Australia and New Zealand, policy trajectories that were once far more in tandem may be about to stray noticeably.
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A spell of global interest-rate divergence is in store as central banks feel their way through the economic fog stoked by US President Donald Trump’s second year at the White House.
The cycle of post-pandemic tightening and easing is giving way to a less synchronised phase across advanced economies, according to Bloomberg Economics.
Its forecasts anticipate a whole spectrum of rate paths for the world’s most-traded currencies in the coming year or so, as uncertainty and volatility — often emanating from Washington — test central bankers’ nerves.
Drawing the spotlight even more than usual will be the Federal Reserve (Fed). Its policymakers will carefully gauge mixed signals from the US economy, while also facing the prospect of a new chair picked by a critical president openly calling for rate reductions and heaping legal pressure on the central bank.
Bloomberg Economics’ forecast is for more Fed easing than the consensus view of just two cautious moves in 2026. Stripping out the US, its aggregate gauge of advanced-economy rates would end the year little changed, highlighting how splintered policy could turn out to be.
From prospective hikes in Canada, Japan and Switzerland, to steady borrowing costs in the euro zone, to cuts in Australia and New Zealand, policy trajectories that were once far more in tandem may be about to stray noticeably. Meanwhile, central banks in emerging markets and beyond, from Brazil to Nigeria, are likely to reduce rates significantly.
US Federal Reserve
- Current federal funds rate (upper bound): 3.75%
- Bloomberg Economics forecast for end of 2026: 2.75%
- Market pricing: Money markets are betting on two quarter-point cuts this year, the first by June and the second by year-end.
The Fed looks likely to keep rates on hold in January and proceed more tentatively this year after lowering its benchmark at three consecutive meetings to close out 2025.
Chair Jerome Powell followed the last cut — one that drew an unusual level of resistance on the central bank’s policymaking panel — by declaring those three reductions should be enough to stabilise the US labour market while still keeping downward pressure on inflation.
The US economy continues to tug policy in two directions. Net hiring has largely stalled, while inflation remains stubbornly above the Fed’s target. But even Christopher Waller, who pushed forcefully for all three cuts, said in December there’s no rush to keep lowering rates in early 2025. Investors don’t see another cut until April.
Other questions loom large for the Fed. The US Supreme Court will later this month hear arguments on whether Governor Lisa Cook can remain at her post while lower courts hear her challenge to Trump’s attempt to fire her over unproven mortgage fraud allegations. Her ouster would deeply puncture the Fed’s independence.
Then there’s the impending announcement of Trump’s selection for the next chair. Powell’s term ends in May and Trump has hinted the job is up for grabs between longtime aide Kevin Hassett and former Fed governor Kevin Warsh. Each has pledged to pursue lower rates and to shake up the central bank. But either would also likely struggle to maintain credibility among investors and with fellow Fed policymakers while also keeping Trump satisfied.
If the economy doesn’t provide a clear justification but the new chair lobbies hard for cuts, the Fed could be in for a period of unprecedented internal conflict.
Another dramatic twist emerged late on Sunday, when Powell revealed the central bank had been served with grand jury subpoenas from the Justice Department threatening a criminal indictment related to his prior congressional testimony on renovations of its headquarters. The move “should be seen in the broader context of the administration’s threats and ongoing pressure,” Powell said in a written and video statement.
South African Reserve Bank
- Current repo average rate: 6.75%
- Bloomberg Economics forecast for end of 2026: 6.5%
The SA Reserve Bank (SARB) is anticipated to extend its easing cycle after two-year inflation expectations — a key input for setting borrowing costs — fell to a record low of 3.7%, bolstering confidence in its new goal of anchoring consumer-price growth at 3%.
The 29 January meeting will be the second since Finance Minister Enoch Godongwana formally adopted the target, a move long backed by central bank officials. Policymakers resumed rate cuts at their November meeting, lowering borrowing costs by 25 basis points.
Governor Lesetja Kganyago said after that decision that he and colleagues agreed there was scope “to make the policy stance less restrictive in the context of an improved inflation outlook,” helped by a stronger rand and softer oil prices.
READ | Interest rate cuts: ‘When?’ is the only question
European Central Bank
- Current deposit rate: 2%
- Bloomberg Economics forecast for end of 2026: 2%
- Market pricing: Swaps imply a small chance of a rate cut around the middle of the year, but investors expect the deposit rate to remain at 2% in December.
The European Central Bank (ECB) hasn’t changed its rate since June, leaving it at 2% after halving borrowing costs in the span of about a year. Data showing inflation at exactly the 2% target in December will have only strengthened policymakers’ resolve not to rock the boat. Forecasts last month also foresee only a minor undershoot of the goal in 2026 and 2027, prompting most officials to show little appetite for further moves, even if they remain alert to global shocks.
Amid that effective policy hiatus, attention may stray toward other important matters such as who will replace the four ECB executive board members whose terms expire by the end of 2027. The first to leave is Vice President Luis de Guindos, and the race to succeed him in June has drawn six applications from around the region.
Bank of Japan
- Target rate (upper bound): 0.75%
- Bloomberg Economics forecast for end of 2026: 1%
- Market pricing: Traders favour one quarter-point hike by June and price a 70% chance of a second increase by the end of the year.
Bank of Japan (BOJ) Governor Kazuo Ueda is likely back in a holding pattern this quarter after lifting borrowing costs to the highest level in three decades last month. Despite Ueda’s signals that there’ll be further rate hikes, the yen has stayed weak, hovering near levels that previously prompted intervention by Japan’s financial authorities.
A further slide in the currency would raise the risk that the next rate increase comes sooner than the widely expected pace of roughly once every six months. Political dynamics also loom large. Prime Minister Sanae Takaichi, known for her preference for monetary easing, will have her first direct opportunity to shape the nine-member policy board as one official’s term expires at the end of this quarter.
Bank of England
- Current bank rate: 3.75%
- Bloomberg Economics forecast for end of 2026: 3.5%
- Market pricing: Money markets fully price a 25-basis-point rate decrease by June and assign an 80% chance of another by December.
The Bank of England (BOE) has signalled it is nearing the end of its rate cutting cycle, with officials warning that decisions to lower borrowing costs further will be a “closer call” in 2026.
Governor Andrew Bailey said the UK central bank has “more limited space” for reductions after cutting its benchmark to 3.75% just before Christmas.
While recent data suggest price growth, the economy and labour market are all weakening, the BOE believes it is approaching the neutral level for rates — the point at which it is neither boosting inflation nor dragging them down. Economists and markets see just one or two more quarter-point reductions before borrowing costs settle. However, some forecasters expect policymakers to go further, given the tepid economic backdrop.
Bank of Canada
- Current overnight lending rate: 2.25%
- Bloomberg Economics forecast for end of 2026: 2.5%
- Market pricing: Swaps price rates to remain broadly steady until the final quarter, when they see a 60% probability of a quarter-point hike.
The Canadian central bank held its rate at 2.25% in December, which policymakers say is about the right level to help the economy adjust to damage posed by US tariffs. Inflation is holding steady near the 2% target, and although core gauges remain above that level, officials expect weak growth to keep a lid on price pressures.
Governor Tiff Macklem has signalled that colleagues are comfortable holding borrowing costs steady barring any major changes to inflation and growth, and officials have explicitly said they see fiscal policy as the better tool to offset the supply shock of the trade war. With population growth rapidly slowing, billions in new spending announced last year in Prime Minister Mark Carney’s first budget, and significant upward revisions to the size of the economy, the central bank will also have to offer a new assessment of economic slack in the coming months.
People’s Bank of China
- Current 7-day reverse repo rate: 1.4%
- Bloomberg Economics forecast for end of 2026: 1.2%
China has kept its central bank on the sidelines of managing an economy hampered by weak demand and deep-seated imbalances in 2025, and that’s likely to continue. Authorities are seeking to tackle challenges including deflation and sluggish consumer confidence via greater government spending, while broad monetary easing is seen as ineffective when households and companies are reluctant to borrow.
After delivering the smallest rate reduction since 2021 last year, the People’s Bank of China (PBOC is expected by economists to stick to the cautious approach and lower borrowing costs by a total of 20 basis points in 2026. It will likely use various tools, including cuts to banks’ required reserves, to keep liquidity in the economy ample.
Reserve Bank of India
- Current repurchase rate: 5.25%
- Bloomberg Economics forecast for end of 2026: 5%
The Reserve Bank of India (RBI) cut its policy repurchase rate to the lowest level in more than three years in December after inflation stayed below 1% for several months, as policymakers sought to bolster demand amid the impact of punitive US tariffs on Indian goods.
“The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum,” Governor Sanjay Malhotra said in a televised address.
The RBI later injected substantial liquidity into bond markets to further ease borrowing costs. The central bank expects economic growth for the year through March to be near 7% and inflation to remain soft. However, delays in signing a trade pact with the US and the continuation of 50% tariffs have made policymakers more cautious and data-dependent in shaping their approach for 2026.
Central Bank of Brazil
- Current Selic target rate: 15%
- Bloomberg Economics forecast for end of 2026: 11%
Brazil’s central bank held its rate steady at a nearly two-decade high at its last decision of 2025 without giving clear signs on when monetary easing will start. Policymakers led by Gabriel Galipolo are data-dependent as economic growth wanes and inflation gradually slows within the tolerance range.
Low unemployment and inflation expectations that are still running above the 3% target midpoint through 2028 are keeping board members cautious. President Luiz Inacio Lula da Silva’s fiscal policy is also a reason for concern due to prospects of greater public spending during the 2026 election year.
Analysts are now divided on when eventual rate cuts will begin, with some expecting them to start in January while others see easing commencing in March. Galipolo has said the central bank “has no closed doors” when it comes to policy.
Bank of Russia
- Current key rate: 16%
- Median economist forecast for end of 2026: 12%
Russian policymakers will be monitoring the inflationary impact of an increase in the value added tax to 22% from 20% that took effect this month before deciding whether to continue easing the key rate at their first meeting of the year on 13 February.
While price growth slowed sharply in recent months, the central bank expects a temporary acceleration early in 2026 and has signalled that elevated inflation expectations among households and businesses will impact its rate decisions.
Banco de Mexico
- Current overnight rate: 7%
- Bloomberg Economics forecast for end of 2026: 6%
Mexico’s central bank is expected to pause its cycle of rate cuts before resuming easing later in 2026. The board’s reasoning is that a stronger peso and a sluggish economy will help alleviate consumer price pressures going forward.
Most policymakers have also made it clear that they are comfortable with inflation staying slightly above the 3% target, which has a tolerance band of plus or minus 1 percentage point. Current projections show central bankers hitting their consumer price goal by the third quarter of 2026.
Still, recently approved tax hikes and new tariffs for over 1,400 goods — mostly imported from Asia — represent potential inflation drivers that could challenge the central bank’s forecasts.
Bank Indonesia
- Current 7-day reverse repo rate: 4.75%
- Bloomberg Economics forecast for end of 2026: 3.75%
Bank Indonesia will need to tread a complicated path to lower rates further. Despite pledging to go “all out” supporting economic growth, currency pressure has kept BI’s hands tied in its last three monthly meetings. The rupiah was Asia’s second-biggest loser in 2025 as persistent investor fears about a widening budget deficit sparked a sell-off in Indonesian bonds.
In the meantime, Governor Perry Warjiyo will have to resort to other tools to bolster growth that’s threatened by weak consumption and higher US tariffs. BI has upped incentives for banks that lower borrowing costs, as lending rates have fallen by only 24 basis points in 2025 despite 125 basis points in cuts in the key rate.
Central Bank of Turkey
- Current 1-week repo rate: 38%
- Bloomberg Economics forecast for end of 2026: 27.5%
Turkey’s central bank is expected to continue with rate cuts through 2026, favored by a cool off in prices, last to just under 31% in annual terms in December. Still, economists are urging caution on the pace of cuts, sharply diverging from the central bank on what end-2026 price growth will look like.
Monetary policymakers are aiming to halve inflation by the end of the year, whereas analysts see it landing above 20% under the current outlook. Food and energy prices will be closely watched.
A key area to watch in the next few months will be the replacement of hawkish Deputy Governor Cevdet Akcay, who is set to retire in April. The central bank recently poached a JPMorgan and Cleveland Fed economist, Murat Tasci, appointing him as chief economist — a position that had been vacant since 2019.
Central Bank of Nigeria
- Current central bank rate: 27%
- Bloomberg Economics forecast for end of 2026: 23.5%
Nigeria’s central bank is expected to resume cutting its rate in 2026 from a current level of 27%, confident that inflation will continue to ease a year after the consumer price index was rebased.
The central bank has also begun a transition to explicit inflation targeting to enhance policy credibility and will aim to slow price growth to 13% in 2027 from an average of 21% last year.
Lower borrowing costs are expected to boost economic expansion, alongside higher government revenue and a narrower budget deficit thanks to a revamped tax code, and the completion of the recapitalisation of the nation’s banks. Still, inflation risks remain because of security challenges in food-growing areas and political spending before elections in 2027.
Bank of Korea
- Current base rate: 2.5%
- Bloomberg Economics forecast for end of 2026: 2.5%
Korea’s central bank meets on 15 January for its first decision of the year, with markets increasingly questioning whether further easing is still on the table. The board ended last year evenly split on the need for another cut as persistent housing strength, renewed currency volatility and uneven growth pulled policymakers in different directions and tilted the debate toward a hold.
That shift has been reinforced by Governor Rhee Chang Yong, who has said rates are already close to neutral. Attention is also turning to leadership uncertainty, with Rhee’s four-year term expiring in April and no clarity yet on whether he will be reappointed — a factor that could shape the tone of monetary policy later in 2026.
Reserve Bank of Australia
- Current cash rate target: 3.6%
- Bloomberg Economics forecast for end of 2026: 2.75%
The Reserve Bank of Australia (RBA) has all but drawn a line under its easing cycle, with Governor Michele Bullock shifting to a more data-dependent stance and signalling that the next move in rates could be higher as inflation remains sticky.
Economists are split. Most expect the monetary policy board to keep rates on hold for the foreseeable future, while others — including Commonwealth Bank of Australia and National Australia Bank — are forecasting a hike later this year, underscoring the uncertainty clouding the outlook. Much will hinge on fourth-quarter CPI, due at the end of January, which will help determine whether the central bank extends its pause or tightens policy again.
Australia’s labour market remains near full employment, but the export-driven economy faces global headwinds, with policymakers hoping domestic momentum offsets the drag.
Central Bank of Argentina
Argentina hasn’t set its policy rate since June, when the country switched to a monetary targeting framework. Still, officials intervene in the overnight repo rate, which remains negative in real terms to encourage interbank lending.
Beginning this month, the peso will trade within a band that will be adjusted at the rate of monthly inflation, instead of the 1% limit set last April with the International Monetary Fund. While inflation may pick up, the policy promises to shore up Argentina’s scant dollar reserves. Consumer prices rose 2.5% in November from October.
The central bank is seeking to buy $10 billion in reserves this year in its base case scenario. That amount could rise depending on demand.
Swiss National Bank
- Current policy rate: 0%
- Bloomberg Economics forecast for end of 2026: 0.25%
President Martin Schlegel and his colleagues are widely seen to have finished easing after they insisted last month that recent downside surprises in inflation are temporary and don’t warrant a return to negative rates. Most economists now expect that the Swiss National Bank (SNB) will keep its benchmark at zero at least until the end of this year, around when some anticipate a first hike.
Policymakers will still watch out for prices falling short of forecasts, after they predicted inflation to average just 0.3% this year. They will also closely monitor the strong Swiss franc, which weighs on import costs, particularly if it rises against the euro.
Sveriges Riksbank
- Current policy rate: 1.75%
- Bloomberg Economics forecast for end of 2026: 1.75%
Sweden’s Riksbank looks likely to keep borrowing costs at a three-year low of 1.75% in the months ahead, as inflation cools and the economy begins to recover after three years of near stagnation.
Policymakers, as expected, held rates steady at meetings in November and December and have continued to signal that their next move is likely to be a hike sometime in 2027, provided the recovery is firmly established by then. The central bank should also soon name a replacement for Deputy Governor Anna Breman, one of its five rate setters, who stepped down in October to take up the top job at the Reserve Bank of New Zealand.
Norges Bank
- Current deposit rate: 4%
- Central bank guidance for end of 2026: 3.5%-3.75%
Norway’s central bank is likely to keep borrowing costs steady at the highest level in the Group of 10 club of major currencies for the next couple of meetings. Officials are balancing sticky core inflation and a slower-than-expected economic recovery as they’re still charting a path of cautious easing through 2028. At the December meeting, Governor Ida Wolden Bache signalled another one to two quarter-point rate cuts for 2026, from June at the earliest.
While the Finance Ministry plans a review of the central bank’s mandate this year, most economists anticipate no major revisions to Norges Bank’s tasks of keeping inflation “close to 2% over time,” while ensuring “high and stable output and employment.”
Reserve Bank of New Zealand
- Current cash rate: 2.25%
- Bloomberg Economics forecast for end of 2026: 2%
The Reserve Bank of New Zealand (RBNZ) ended 2025 with a quarter-point rate cut, as anticipated, but surprised by saying its easing cycle was likely over. The hawkish tone prompted markets to start pricing in a hike this year, driving up wholesale rates and prompting lenders to start lifting borrowing costs.
That’s when new governor Anna Breman stepped in. In an unscheduled statement just 15 days into her term, she warned that financial conditions had tightened beyond what was implied by the RBNZ’s cash-rate projections. The shot across the bows prompted some unwinding of rate-hike bets, but data showing gross domestic product jumped 1.1% in the third quarter — confirming New Zealand’s economic recovery is well under way — left investors still betting the RBNZ will pivot to tightening in late 2026.
National Bank of Poland
- Current cash rate: 4%
- Median economist forecast for end of 2026: 3.5%
Governor Adam Glapinski has signalled a shift to a wait-and-see mode after six rate cuts last year. The moves followed an unexpectedly sharp slowdown in inflation to the 2.5% target. But Glapinski said in December the main rate is now probably going to stay at around 4% for a longer period of time. Some additional fine-tuning was still possible depending on inflation prints in the months ahead, he said.
Loose fiscal spending will remain a big factor for in policy. The central bank has warned repeatedly that Poland’s budget deficit — the European Union’s second widest after Romania — will limit the scope for more rate cuts. At the same time, Glapinski has signalled the outlook for inflation should remain fairly benign. For a central bank that often erred on the side of sounding hawkish only to wrong-foot markets with a bold series of cuts last year, more surprises are likely to be in store in 2026.
Czech National Bank
- Current cash rate: 3.5%
- Median economist forecast for end of 2026: 3.5%
The Czech central bank will contemplate whether easing inflation, likely below its 2% target this year, allows more rate cuts. Despite slowing price growth, some policymakers remain concerned about longer-term risks in soaring costs of services, the red-hot housing market and a widening budget deficit.
Softer-than-expected December inflation prompted investors to boost bets on more cuts, fueling a bond rally and triggering the biggest koruna drop in 10 months. Still, Governor Ales Michl has refused to provide guidance for rate direction beyond saying that all options are open. “We will strive to keep rates above inflation, but we’ll be debating how much that will be,” Michl said on 4 January.