Central bank scanner: Tighter without tightening

European Central Bank (ECB):

• Recent action (September 10): The ECB raised its deposit rate 25 basis points to 2.50%. The energy shock is keeping inflation above target, while resilient second-quarter growth gave policymakers room to hike.
• Outlook (October 29): Consumer spending and investment in AI, infrastructure and defense should support growth. Wage growth and underlying inflation have changed little despite the energy shock. France’s fiscal strains bear watching but do not yet warrant ECB intervention. We expect one more hike.

Federal Reserve (Fed): 

• Recent action (September 16): The Fed unanimously raised its target range 25 basis points to 3.75%–4%, starting a new tightening cycle. Inflation has remained above the Fed’s 2% target for more than five years.
• Outlook (October 28): We expect a pause to assess incoming data, despite Chair Kevin Warsh’s aversion to data dependence. Higher rates squeeze rate-sensitive sectors to counter price pressures from energy, fiscal deficits, AI investment and services. The question is how restrictive policy must be, and for how long. We expect two more hikes by early 2027. This tightening cycle starts from a higher policy rate and lower inflation than the cycle that began in March 2022, giving the Fed scope for a more cautious approach. The risk is hotter, more persistent inflation than policymakers expect.

Bank of Canada (BOC):

• Recent action (September 2): The BOC held rates flat for a seventh straight meeting. Trade tensions and excess supply weigh on growth, while energy prices and tariffs threaten inflation. 
• Outlook (October 28): September inflation ticked up, with gasoline prices up 27.8% from a year earlier. Underlying inflation remains contained, but energy and tariff costs could spread. Financial markets are forcing the hand of policymakers. The BOC has not committed to a year-end hold. We expect a hike as early as December.

Central Bank of Brazil (BCB):

• Recent action (September 16): The BCB cut rates 25 basis points to 13.75%, marking five consecutive rate decreases. Inflation returned to its target range but remains near the upper limit.
• Outlook (November 4): We expect further gradual cuts. Food-price increases squeeze household budgets and risk lifting inflation expectations. Protecting the bank’s hard-won inflation credibility argues for caution. 

Bank of Japan (BOJ):

• Recent action (September 18): The BOJ raised rates 25 basis points in a 7–2 vote. Its second hike in three months brought rates to their highest since 1995. Both dissenters favored a hold. A stronger yen cushioned import costs, though those costs remained sharply higher than a year earlier.
• Outlook (October 30): Underlying inflation is near the bank’s 2% target, while subsidies have dampened gasoline-price increases. Second quarter growth accelerated at its fastest rate, in year-over-year terms, in a year. We expect further hikes as wage gains sustain inflation, while energy and food costs add to those pressures.

Reserve Bank of India (RBI): 

• Recent action (October 7): The RBI unanimously raised its repo rate 25 basis points in its first hike since February 2023. Rising inflation and resilient growth prompted tightening as global financial conditions grew less forgiving.
• Outlook (December 4): September inflation accelerated and is now in its fourth month above the 4% target. It remains within the RBI’s tolerance band but is poised to rise further; food inflation is a major concern. Stronger growth and rising inflation support further hikes.

Bank of England (BOE):

• Recent action (September 17): The BOE held rates steady in a 6–3 vote; dissenters favored a hike. Energy-price spillovers into wages and prices remain limited. Tighter financial conditions and a soft labor market give policymakers room to wait. 
• Outlook (November 5): Prolonged high energy prices increase the risk of broader wage and price pressures. We expect one more hike, as early as November.

Bank of Mexico (Banxico):

• Recent action (September 24): Banxico left rates unchanged in a unanimous vote. Growth rebounded in the second quarter but was expected to slow in the third. Core inflation continues to cool.
• Outlook (November 5): Banxico dropped guidance for an extended hold, opening the door to a cut if inflation keeps cooling. Policymakers need not follow the Fed. Weak demand argues against tightening, but trade uncertainty, energy costs and peso depreciation remain risks. 

Reserve Bank of Australia (RBA):

• Recent action (September 29): The RBA unanimously raised rates 25 basis points. Stronger inflation and activity, capacity constraints and higher energy costs drove the move.
• Outlook (November 3): Energy prices, capacity constraints and AI-related demand underpin the bank’s tightening bias, but we expect rates to hold. Another hike is expected this year.

People’s Bank of China (PBOC): 

• Recent action (October 20): The policy rate was left unchanged for a 17th month. AI investment and exports are supporting growth.
• Outlook: Weak domestic demand favors targeted lending and liquidity support over broad rate cuts. Year-over-year real GDP growth improved in the third quarter, reducing the urgency for more easing. Retail sales improved in September, but the property downturn continues to weigh on household demand. Fixed-asset investment fell 7.2% in the first nine months despite low borrowing rates.

Central Bank of Turkey (CBRT):

• Recent action (September 10): The CBRT held its one-week repo rate at 37%. Weak demand and cooling underlying inflation supported a hold, while energy costs remained a risk. 
• Outlook (October 22): Annual inflation fell below 30% for the first time since November 2021. A cut is possible, but energy costs and exchange-rate risks warrant caution.