Australian Bond Exchange Weekly Update
31st January 2025
Key points
- Australian inflation eases further
- Federal Reserve holds rates steady
- More cuts for the Bank of Canada and European Central Bank
- RBA: February in focus for rate cuts
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year for the December quarter is 3.2%.
- The US cash rate (policy rate) is currently between 4.25%-4.50%pa and the annual inflation rate in the year to December is 2.9%.
- The Bank of England Bank Rate currently sits at 4.75%pa to fight an inflation rate of 2.5% in the year to December.
- The European Central Bank Cash Rate (deposit facility) is 2.75%pa, to fight an annual inflation rate of 2.4% in the year to December.
Australian Inflation Eases Further
Australia’s inflation rate continued its downward trajectory, easing to 3.2% in the December quarter – the lowest level in four years. The decline strengthens expectations that the Reserve Bank of Australia (RBA) may consider cutting interest rates when it meets for the first time in 2025.
Financial markets are forecasting more than an 90% chance of a 25-basis-point cut to 4.1% at the RBA’s first board meeting in February, with NAB, Commonwealth Bank, ANZ, and Westpac all expecting a rate reduction.
Federal Reserve Holds Rates Steady
The U.S. Federal Reserve opted to maintain the federal funds rate at its current level, signalling a return to a more cautious approach heading into 2025.
“We feel like we don’t need to be in a hurry to make any adjustments,” Fed chairman Jerome Powell
The decision comes against a backdrop of persistent inflationary pressures, a robust labor market, and uncertainty surrounding the economic impact of policies introduced by the new U.S. administration. Key concerns include the potential inflationary effects of proposed fiscal stimulus measures and the introduction of new tariffs, which could disrupt trade dynamics and supply chains.
The increase in unemployment adds to mounting evidence of a cooling economy, which could prompt the Bank of England to resume rate cutting after holding its key policy rate steady at its last meeting.
More Cuts for the Bank of Canada and European Central Bank
Both the Bank of Canada (BoC) and the European Central Bank (ECB) cut key policy rates this week amid mounting economic concerns and with the looming threat of trade tariffs adding to the uncertainty.
The European economy has been struggling with persistent weakness, recording no growth at all in the December quarter.
RBA: February in Focus for Rate Cuts
As Australia’s inflationary pressures continue to moderate, the likelihood of a pre-election rate cut has risen considerably.
Since May 2022, the RBA has implemented 13 rate hikes, pushing the cash rate to its highest level in 13 years and delivering the most aggressive tightening cycle in a generation.
It was also one of the last major central banks to raise rates, which partly explains why it has kept them steady for so long.
*Data accurate as at 31.01.2025
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